The IRS “Dirty Dozen” – Scams and Schemes to be Aware of

Just in time for tax season, the IRS has compiled a list of warnings about common scams and schemes that taxpayers should be aware of. This list, called the “Dirty Dozen,” is prepared by the IRS on an annual basis and details 12 scams that target taxpayers and tax preparers and put them at risk of losing money and/or exposing their personal and financial data. The Dirty Dozen is published by the IRS on a daily basis for 12 days with a news release each day detailing a new scam. 2023’s list has covered 10 scams so far. More detail and the ongoing list can be found here: Dirty Dozen | Internal Revenue Service (irs.gov)

One of this year’s Dirty Dozen is a warning to taxpayers about Offer in Compromise “mills” that claim their services are needed to settle IRS debts. These “mills” make promises to taxpayers that they will be able to settle IRS debts for pennies on the dollar. They often aggressively promote the program in a misleading (and costly) way to taxpayers who are ineligible. Many taxpayers do not realize that there is a specific and involved application and review process for an Offer in Compromise (“OIC”). An agreement with the IRS is not achieved by simply making a phone call and offering a settlement amount.

In order to qualify for participation in the OIC program, a taxpayer must actually meet certain requirements. A taxpayer must:
– Have filed all required tax returns and made all required estimated payments;
– Not be in an open bankruptcy proceeding;
– Have a valid extension for their current year return; and
– If the taxpayer is an employer, have made all tax deposits for the current and past two quarters prior to application.

If a taxpayer meets the eligibility requirements, they must then prepare an application to be made on the basis of a doubt as to there being a legitimate liability or a doubt as to the IRS’s ability to collect on the liability. Submitting an application does not ensure that the IRS will accept the taxpayer’s offer. Once submitted, the IRS will review the taxpayer’s application and financial information and will consider the taxpayer’s income, expenses, equity, and ability to pay. Generally, the IRS will not approve an application if the amount offered represents less than what the IRS could otherwise recover through collection actions within a reasonable period of time. For more information on Offers in Compromise, please see the IRS’s Form 656-B (Rev.4-2022). Form 656-B (Rev. 4-2023) (irs.gov)

Thank you to Colleen Spain for this week’s tax tracker!