The IRS offers a settlement program called an Offer in Compromise. This program allows you to settle your tax debt for less than the full amount owed. You must have a verifiable hardship and be unable to pay your tax bill in full.
The IRS has a list of acceptable reasons for not paying your taxes in full. If you fall into one of these categories, then you can apply for an Offer in Compromise (OIC).
IRS settlement offers are usually only granted if the taxpayer has a verifiable hardship that makes it impossible to pay off their tax debt in full. The IRS looks at the taxpayer's financial situation, including income and expenses. It will also consider available assets and any income that can be garnished from wages or bank accounts. If you don't have enough money to pay off your taxes, then you may qualify for an OIC from the IRS.
An Offer in Compromise is not guaranteed; however, it's worth exploring if your financial situation makes it difficult or impossible to pay back all of your taxes owed at once
When you owe more federal income tax debt than you can realistically pay, you may qualify for the best IRS settlement option possible. The ultimate tax settlement is an IRS Offer in Compromise (OIC).
While IRS payment plans or installment agreements can help you pay your full tax debt over time, if you can afford it, an Offer in Compromise (Tax Settlement) is about as close as anyone can come to total IRS debt forgiveness. The IRS will never take "zero" dollars but they will take as little as $100 under the right circumstances. Side note: Not everyone can settle for $100.
KNOW THIS: The IRS will always focus on 2 things. Collect money and close cases.
Let’s take a moment to cover some aspects of an Offer in Compromise so you can understand how you might be able to dramatically settle a tax debt for less than the full amount you owe.
Applying for an Offer in Compromise:
If you have reason to believe that you could qualify for a tax settlement through an Offer in Compromise, you can take a look at the Offer in Compromise Booklet and Form 656 on the IRS website. If you feel overwhelmed and want to improve your chances of a successful OIC, give strong consideration to hiring an experienced tax professional. A veteran tax professional will put the "best face" on your settlement offer. They will prepare and package all of the documents necessary for a successful tax settlement.
How is the offered tax settlement determined?
An IRS Offer in Compromise starts with you, the taxpayer, making a valid tax settlement offer to the IRS by using Form 656 — but you can’t just offer any amount you wish as an IRS settlement for your tax debt.
The IRS expects the amount you offer to be equal to or greater than the value of your assets — real property, vehicles, and bank accounts — as well as anticipated future income minus basic living expenses (allowable expenses). The IRS terms this your “reasonable collection potential (RCP).”
You do not need to be "destitute" to be eligible for an Offer in Compromise. The IRS "allowable expenses" includes housing, car payment (2 if you are married), health insurance, utilities, food and clothing, alimony, child support, secured loan payments, term life insurance, etc.
To determine your ability to pay your outstanding tax debt, the IRS may require you to complete and submit Form 433-A. The form gathers details of a wage earner’s or self-employed person’s financial situation, including a taxpayer’s assets and expenses.
When it comes to figuring out your IRS Offer in Compromise, there may be a lot of rules and regulations. With the IRS there are always confusing rules and regulations so you need to be prepared.
The IRS will examine your financial picture and your ability to pay, and then they’re going to look at their ability to collect.
The number one reason that the IRS will reject a tax settlement is that the taxpayer decided to do their Offer in Compromise themselves. Don't compound your tax debt problems by attempting to do a tax settlement yourself. The IRS approves approximately 42% of every tax settlement submitted.
The IRS problems solvers at Flat Fee Tax Relief have a 96% approval rate. This is our record for over a decade. We do hundreds of Offer in Compromise submissions every year. Although the IRS forbids Tax Practitioners from "guaranteeing" an IRS outcome, if you have completed as many successful OICs as we have, you have a very good idea of what will "fly right" and what will "crash and burn."
For more information, call our teams for detailed information.