By: Elowen Gray

Across the United States, taxpayers facing significant financial pressure are the target audience for a multi-billion-dollar tax relief industry. Yet, according to two former high-level IRS agents, the claims made in widespread advertising campaigns often fail to align with the realities of the federal tax system. They are now urging consumers to adopt a proactive approach of verification to protect themselves from financial harm.

The warning comes from Michael D. Sullivan, a former IRS Revenue Officer, and Peter Salinger, a former IRS Appeals Settlement Officer. A recent study conducted by them had signaled a significant problem in tax resolution: the number of taxpayers spending thousands of dollars in advance fees for settlement services based on dubious claims is increasing. 

The observation is particularly evident in the case of the IRS Offer in Compromise (OIC) program, which is the main category for the government to settle tax debt for less than the full amount owed. According to recent IRS data, the approval rate for these applications has fallen to a historic low of 21%. Last year, of more than 33,000 applications filed, over 26,000 were rejected.

The experts’ analysis concludes this is not a result of the program becoming stricter, but rather the system being inundated with ineligible applications.

“The fundamental problem is that a taxpayer’s eligibility for a settlement is determined by a strict, non-negotiable financial formula, not by a firm’s marketing slogan,” stated Sullivan. “When a consumer signs up based on a promise of a deep discount without their actual financial situation being thoroughly analyzed, they are often set up for failure.”

Verifying the “Pennies on the Dollar” Claims

One of the common marketing claims is that tax liabilities can be settled for ‘pennies on the dollar,’ but this is often an exaggeration. Settlements for a small fraction of the owed amount are possible, but they are rare and depend on specific financial circumstances. The former agents recommend that taxpayers verify the above statement by understanding the method of settlement calculation. The IRS applies a method known as “Reasonable Collection Potential” (RCP), which is the professional evaluation of a taxpayer’s financial situation.

It includes equity in assets like homes and vehicles, bank account balances, and a calculation of future disposable income after essential, standardized living expenses are accounted for. If this formula shows a taxpayer can pay their debt over the remaining life of the collection statute, their offer may be rejected. The experts stress that this is a matter of financial math, not a negotiation that a representative can sway.

Verifying Claims of Special Programs and Access

Another area requiring verification involves claims about special programs. Many firms heavily advertise the “IRS Fresh Start Program,” implying it is a new or limited-time opportunity. This program is a legitimate IRS program that offers standard tax relief options, such as installment agreements and the Offer in Compromise. However, it is not a special, limited-time offer and does not provide any extra advantages.

Claims of ‘insider access’ or a special relationship with the IRS are misleading and should be carefully scrutinized. The IRS operates under standard procedures that apply equally to all taxpayers and their representatives. “There are no backroom deals,” Salinger noted. “Every tax professional must follow the same rules.” As a point of verification, the experts recommend taxpayers use the free and anonymous OIC pre-qualifier tool available on the IRS website before engaging any paid service.

A Three-Step Verification Process for Consumers

Based on their findings, Sullivan and Salinger recommend a simple verification process for any taxpayer considering hiring a tax relief firm. It is recommended that consumers verify the professional’s credentials to help ensure they are licensed to practice before the IRS, such as CPAs, Attorneys, or Enrolled Agents.

Furthermore, taxpayers should insist on speaking directly with the licensed professional who will be preparing and managing the case, not just a salesperson or “consultant.” Finally, a reputable professional should conduct a thorough financial analysis to determine a taxpayer’s likely eligibility before accepting payment, a crucial step to verify the potential for success.

The complete analysis is detailed in the authors’ book, Exposing the Secrets for IRS Settlements. They conclude that in an industry with low barriers to entry for marketing, the ultimate responsibility falls on the consumer to verify promises and choose their representation wisely.

Disclaimer: The information provided in this article is for educational purposes only and is not intended as legal, financial, or tax advice. The claims regarding the IRS Offer in Compromise (OIC) program, including approval rates and application outcomes, are based on publicly available IRS data and expert analysis. Individual results may vary depending on eligibility and financial circumstances. It is recommended that taxpayers consult a qualified tax professional or IRS representative to discuss their specific situation and explore available options.