So What about That Ad That Says You Can Make an Offer on IRS Back Taxes

Let's try to understand how IRS back taxes work.

Let's take this scenario up as an example. Let's say, that in the year 2006, you decided that it would be a good idea if you went and got stock options. Unfortunately, you made a bad bet and in a couple of months, it was obvious that they were worth very little. Or maybe you made an investment in one of those get rich quick schemes on the Internet, and it doesn't pay off (big surprise).

But a few things go well for you, too. You went to Atlantic City and won a few thousand dollars. A year down the line, the financial crisis begins. You are laid off from work, you lose your health insurance and a member of the family needs an operation.

In the middle of all this, a piece of IRS certified mail shows up under your door. It turns out that you forgot to pay anything for the Atlantic city winnings, and now, they want you to pay them $20,000 in back taxes. Of course, you don't have anything, so you feel that you should just send them what you can - a check for $1000 to show them that you mean well.

You do finally find a low-paying job, but by now, the credit card companies are on your trail too. As time goes on, you notice that your IRS back taxes are mounting. They're asking you to pay more and more because at your new place of employment, there's nothing withheld out of your paycheck for your taxes. You figure you needed every penny you had and couldn't afford to have anything withheld.

At this point, there's nothing you can do but to pick up every piece of certified mail that arrives and then, too scared to open it, you put it all in a big Samsonite suitcase in the closet. Before long, the Samsonite suitcases begins to fill up too.

You're worried sick about all this, and you figure that you buy a nice iPad 3 with the one credit card there is a little spending limit left on, to console yourself. One day, as you're surfing the net, you see a great ad in full Retina Display glory - they say that you can settle your IRS back taxes by paying no more than 2% of what you owe.

When someone says that to you on a high resolution screen, what choice do you have but to believe them? Well, they have all kinds of amazing testimonials - people who have paid off $100,000 IRS back taxes for just $500 for instance.

All you need to do, they say, is to offer the IRS something called an offer in compromise. That's just a good faith payment to the IRS if you tell them that you really are not able to pay anymore. The IRS just takes your word for it, and they completely erase your debt. Of course, you feel that you should jump at the offer, right?

As you might expect, that's not how this works out. It's not that there Offer in Compromise system is fake. It's real, certainly, and it's been around for years. But you have to prove to the IRS that you really are poor. They don't take your word for it. They demand proof.

If you're someone who has an iPad (and the IRS knows), they are going to want it first of all. You need to give them a full list of all your assets so that they know that you're poor. Well, that's how the cookie crumbles.