If you owe taxes to the IRS, the IRS has an amazing program through which you can settle your tax debt for much less you owe. Does this sound too good to be true? For most people it is. Although there is a program called the offer in compromise (OIC), very few people qualify to actually settle their debt. The IRS will accept a settlement if you can prove that the IRS will not be able to collect the full amount of your debt before the statute of limitation for collection expires (this is known as your "reasonable collection potential" and it must be less than the amount of taxes you owe).
Nevertheless, there are many companies out there who market themselves as being able to "settle your debt for less." These companies abuse the OIC program by reeling in consumers with deceptive promises and failing to qualify taxpayers for an OIC. An example of one these companies is the Roni Deutch Tax Center (RDTC). After being prosecuted by state agencies, Tax Attorney Roni Lynn Deutch (A.K.A the "Tax Lady"), closed her law practice and resigned from the California State Bar in May 2011.
Deutch had an extremely promising start. After obtaining her law degree, she opened her own tax practice in 1991. After several years of success, she launched RDTC, a tax preparation franchise company. By 2009, RDTC was named on of the fastest growing franchise companies in the US. In addition, Deutch was also a popular author, blogger and television show guest.
Her downfall began in 2006 when the New York City Deportment of Consumer Affairs (DCA) sued her for misleading television advertisements. The DCA argued that she failed to disclose eligibility requirements when advertising the OIC program, thereby concealing the fact that a majority of people do not qualify for the OIC. Deutch settled this lawsuit for deceptive advertising practices in 2006 by agreeing to pay $300,000.
In August 2010, the Attorney General of California filed a $34 million lawsuit against Deutch for her fraudulent scheme. According to the lawsuit, "only 10% of her clients ever [got] their tax debts resolved. Most quit or [were] terminated by Deutch's firm and [were] denied refunds after Deutch's staff bills them for work that wasn't performed." In the end, Deutch filed for bankruptcy, surrendered her bar license and closed her doors.
Deutch's story should be a lesson to consumers: Be careful who you hire to resolve your tax problems and be particularly careful about companies advertising themselves as being able to settle your tax debts for less. If the company is a fraud, an internet search may uncover its deceptive practices through customer complaints. When you are hiring a representative for an OIC, be skeptical of guarantees made before your finances are reviewed.
Also, be aware that the OIC process is difficult and time consuming. It could take anywhere from 1-2 years for an offer to be resolved. Nevertheless, many OICs are accepted every year. In order to determine whether you qualify, a tax professional should consider your reasonable collection potential. This amount is equal to the liquidation value of your assets (which includes 100% of your cash and investments) plus your monthly disposable income over a period of 48 months. If this amount is less than what you owe to the IRS, you qualify for an OIC and must offer this amount as settlement.