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As part of the annual Dirty Dozen list of tax scams, the Internal Revenue Service renewed its warning to taxpayers looking to settle IRS tax debts using a "Tax Relief" or "Tax Settlement" service.  These services offer assistance in reducing a taxpayer's overall debt owed to the IRS.the concerning pricey Offer in Compromise (OIC) "mills” that aggressively mislead taxpayers into thinking their tax debts can disappear.

As in past years, companies running OIC mills continue heavily advertising their promises to settle taxpayer debt at steep discounts for pennies on the dollar. While OIC is a legitimate IRS program, many taxpayers do not meet the technical requirements for the tax resolution program, often leaving them facing excessive fees from the promoters for information they could have easily obtained for free by using the IRS's Offer in Compromise Pre-Qualifier tool.

The OIC is a valuable IRS program to help taxpayers who cannot pay their federal tax debts, and some companies offer legitimate services. However the IRS encourages individuals to take a few minutes to assess the information available on IRS.gov to determine if they meet the eligibility criteria for the OIC program and to avoid hiring expensive promoters.

"Taxpayers need to be cautious with aggressive marketing around the Offer in Compromise program that can mislead taxpayers,” said IRS Commissioner Danny Werfel. “These mills try to pull in steep fees while raising false expectations and exploiting vulnerable individuals with promises that tax debt can magically disappear.”

“The program is legitimate, but it’s not for everyone,” Werfel added. “The IRS wants to help taxpayers who qualify for this program, but there are very specific requirements for people to qualify. A good first step is for taxpayers to take a few minutes and explore our free resources on IRS.gov. They can find out if they might qualify for this program – and at the same time avoid paying someone a hefty fee.”

OIC mills are the focus of the fifth news release in the Dirty Dozen series. Started in 2002, the IRS' annual Dirty Dozen campaign lists 12 scams and schemes that put taxpayers and the tax professional community at risk of losing money, personal information, data and more. While the Dirty Dozen is not a legal document or a formal listing of agency enforcement priorities, the education effort is designed to raise awareness and protect taxpayers and tax pros from common tax scams and schemes.

Beware of Offer in Compromise mills

An OIC is a legitimate IRS program that allows qualifying taxpayers to work with the IRS to settle a tax debt for less than the full amount owed. It is an option for those who may be unable to pay their full tax liability, or if doing so creates a financial hardship. In determining eligibility, the IRS considers the taxpayer’s unique situation. The OIC agreement occurs directly between the taxpayer and the IRS without a third party.

Taxpayers, however, should be cautious of OIC mills, which make exaggerated claims through radio and TV ads about settling tax debts inexpensively. In reality, these mills often charge excessive fees, and taxpayers end up paying for a service they could have obtained for free directly from the IRS.

The IRS urges individuals to spend a few minutes reviewing information on IRS.gov to determine if they may be eligible for the OIC program by using the IRS's Offer in Compromise Pre-Qualifier tool for free.

The IRS also reminds taxpayers about the First Time Penalty Abatement policy, where taxpayers can go directly to the IRS for administrative relief from a penalty that would otherwise be added to their tax debt.

Help others: Report fraud, scams and schemes

The IRS encourages taxpayers to report any individuals promoting improper, abusive or fraudulent tax schemes, as well as tax return preparers who deliberately prepare improper or fraudulent returns.

To report an abusive tax scheme or a tax return preparer, people should use the online Form 14242, Report Suspected Abusive Tax Promotions or Preparers, or mail or fax a completed paper Form 14242, Report Suspected Abusive Tax Promotions or Preparers, and any supporting material to the IRS Lead Development Center in the Office of Promoter Investigations.

Mail:
Internal Revenue Service Lead Development Center
Stop MS5040
24000 Avila Road
Laguna Niguel, California 92677-3405
Fax: 877-477-9135

Additionally, taxpayers and tax practitioners may submit their report of improper or fraudulent practices to the IRS Whistleblower Office, which may offer a possible monetary award.

To learn more about avoiding becoming a victim of tax preparation schemes and fraud, please see Abusive Tax Schemes and Abusive Tax Return Preparers on IRS.gov.