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Ask Dave

Is It Worth a Lawyer?

Shane wonders if it's worth it to pay a lawyer to settle IRS debt. Dave doubts it would be.

QUESTION: Shane on Facebook wonders if it’s worth it to pay a lawyer to settle IRS debt. Dave doubts it would be.

ANSWER: Probably not, depending on the situation. There are professional tax attorneys that do a good job. I would never do one of these cable TV ads that claim to be from former IRS agents who can help you with your IRS debt, and that you don’t need to pay your taxes if you work with them and all that. You’re going to lose $10,000 and get nothing.

The only way your federal income tax is forgiven is under a process called offer in compromise. In order for the IRS to approve any IRS tax debt to be forgiven, you have to prove to them that you have absolutely no money, no income and no earning potential. You have to basically prove pauper status.

There are three or four other little things that have to happen, and I’ll just tell you this: In all the years I’ve been doing this, I’ve seen about four or five people successfully get an offer in compromise through. They are very difficult to get approved.

When Sharon and I went broke and lost everything, we had money out with the IRS. You can’t bankrupt the IRS. When we went through bankruptcy, we worked with them for a couple of years on an OIC. We were legitimately broke. We had gone through a bankruptcy and had no money.

The only problem was I started making money. They saw my income and they said I had the ability to pay my debt, so they told me to pay it. I didn’t really have the ability to pay it, but they figured out that over a certain number of years, I could pay it back, so my OIC was denied.

It wasn’t because I didn’t know how to file it. I had an attorney working on it. It was a big debt—a lot of taxes. That is very cumbersome when you are broke and broken. I know what you’re facing, but I would not go with one of those deals.

If you can prove you are broke and have very little income potential and no assets—no house, no retirement accounts, no money anywhere of any kind—and you can barely scrape up the money to pay a good tax attorney, it might be worth your trouble then to hire an attorney to do an offer in compromise.

But in all these years, it’s been very seldom that I’ve seen one approved.

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