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IRS Commissioner Warns Taxpayers Not to Fall Prey to Tax Debt Settlement 'Mills'

S.J. Steinhardt
Published Date:
Dec 22, 2023

The IRS recently announced that it is waiving nearly $1 billion in late-payment penalties for many taxpayers who were not sent automated collection reminder notices for 2020 and 2021. But because the notices will resume in January, IRS Commissioner Danny Werfel, during a press call, warned those receiving them not to let their fear compel them to engage tax settlement companies that promise to reduce their outstanding debts, including penalties, The Washington Post reported.

“People with unpaid tax bills ... need to be wary about aggressive marketing by some places that overinflate promises of wiping out IRS debt,” he said. “We have seen patterns of behavior in the past where marketers and promoters exploit an opportunity like this.”

The IRS calls such companies Offer in Compromise (OIC) “mills,” the Post reported, referring to a legitimate program that the IRS offers to allow taxpayers to settle their tax debts for less than the full amount owed. To qualify, taxpayers can apply for themselves on the Offer In Compromise Pre-Qualifier tool.  

The tax debt relief companies may not disclose that getting an OIC accepted is difficult, the Post pointed out. To qualify, the IRS will look at income, expenses, ability to pay and whether there are any assets, including home equity. Some of these companies may take the taxpayer’s money and do nothing.

“Some people simply don’t qualify for these deals,” Werfel said. In fiscal year 2022, taxpayers proposed 36,022 OICs to settle existing tax liabilities for less than the full amount owed. The IRS accepted 13,165, or 36 percent.

The IRS’s Offer in Compromise page provides eligibility criteria and other guidance.

Penalty relief is automatic, but temporary, the Post noted. The failure-to-pay penalty will start up again on April 1. This penalty is usually one-half of 1 percent of the tax owed for each month, or part of a month, that the payment is late, up to 25 percent.

“Of course, if you pay in full, there won’t be any further accrual,” IRS spokesman Eric Smith told the Post. “If you can’t pay in full, the real advantage of setting up an installment agreement with the IRS is that it cuts future late-payment penalty accruals in half.”

Under federal law, the IRS is required to charge interest when taxpayers don’t pay their balances on time. “We do not legally have the authority to waive this interest,” Werfel said. The interest rate is currenlty 8 percent, and it would apply to any outstanding tax debt now accruing.

The IRS will be issuing a special reminder letter to many of the eligible taxpayers starting next month. The letter will detail the tax liability and include ways to pay what is owed.

“That’s important because time does not make these past-due tax bills get any better,” Werfel said.

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