These scams offer tax relief to those who owe heavy debts to the IRS. The scammers usually promise to settle the debt for pennies on the dollar. However, in reality, these scammers usually are only promising to prepare an offer in compromise (OIC). An effort that has little chance for success and can be completed by the taxpayer himself without any assistance by settlement agency.
An OIC is an agreement between the taxpayer and the IRS in which the IRS promises to accept less money than is owed due to extenuating circumstances. According to the IRS, an OIC will be accepted if and only if the amount offered by the taxpayer is equal or greater than the reasonable collection potential. This agreement entails revealing the taxpayers entire financial picture to the IRS. Still, the IRS, tends only to accept OICs in extreme circumstances. As a result, the IRS reportedly rejects 75% of OICs.
Tax settlement firms that prepare OICs for their clients offer no advantage in having taxes forgiven. In fact, if a taxpayer can afford to hire one of these firms they generally have a small chance of getting an OIC approved in the first place. Furthermore, preparing an OIC can actually hurt indebted taxpayers since it prevents them from disputing underlying liability. Regardless, taxpayers should be able to prepare an OIC by themselves. Those who fall prey to the scam can lose thousands of dollars in return for basically nothing.
As of now, some tax settlement scammers have escaped regulation. In the past, some of these scammers have been charged with unlawfully misrepresenting or overstating their ability to reduce tax debts. Still, those scammed often stand little chance of redeeming payments.