Understanding IRS Settlement Amounts: A Comprehensive Guide

Navigating tax debt can be a daunting task, especially when considering an Offer in Compromise (OIC) with the Internal Revenue Service (IRS). Determining the potential settlement amount is crucial for making informed decisions. This comprehensive guide will delve into the factors influencing IRS settlement amounts, eligibility criteria, and the application process.

Factors Determining IRS Settlement Amounts

The IRS evaluates several key factors when determining the appropriate settlement amount for an OIC:

Financial Status: The IRS assesses your ability to pay the tax debt in full. This includes your income, assets, and expenses.
Income Level: Your income level plays a significant role in determining your eligibility for an OIC and the potential settlement amount.
Essential Living Expenses: The IRS considers your necessary living expenses, such as housing, food, and healthcare, when calculating your settlement amount.
Personal Asset Equity: The equity in your personal assets, such as real estate and vehicles, can impact your settlement amount.

Eligibility Criteria for an IRS Offer in Compromise

To be eligible for an OIC, you must meet the following criteria:

You have filed all required tax returns and made all estimated tax payments.
You are not currently involved in an open bankruptcy case.
You have a valid extension for the current tax year’s return (if applying for the current year).
As an employer, you have made all required tax deposits for the current quarter and the past two quarters.

Application Process for an IRS Offer in Compromise

Submitting an OIC application involves the following steps:

Gather Required Documentation: Compile all necessary financial documents, including income statements, asset statements, and expense records.
Complete Form 656: Fill out Form 656, Offer in Compromise Booklet, which includes detailed information about your financial situation and the proposed settlement amount.
Submit Application and Fees: Submit your completed Form 656, along with a non-refundable application fee of $205 and an initial payment. The initial payment amount varies depending on the payment option you choose.

Payment Options for IRS Offers in Compromise

You have two payment options when submitting an OIC:

Lump Sum Cash Offer: Submit an initial payment of 20% of the total offer amount with your application. If the offer is accepted, you will receive written confirmation and must pay the remaining balance due within five or fewer payments.
Periodic Payment Offer: Submit an initial payment with your application and continue to make monthly payments while the IRS considers your offer. If the IRS accepts your offer, you will continue to make monthly payments until the tax debt is paid in full.

Understanding the IRS Evaluation Process

Once you submit your OIC application, the IRS will evaluate your offer based on the following factors:

Ability to Pay: The IRS will assess your financial situation to determine if you can afford to pay the full tax debt.
Reasonable Collection Potential: The IRS will estimate the amount they can reasonably collect from you within a specific timeframe.
Doubt as to Liability: The IRS will consider whether there is any doubt about your liability for the tax debt.
Effective Tax Administration: The IRS will evaluate whether accepting your offer would promote effective tax administration.

Acceptance and Rejection of IRS Offers in Compromise

The IRS will notify you in writing if your OIC is accepted or rejected. If your offer is accepted, you must comply with all the terms of the agreement, including making all required payments. If your offer is rejected, you may appeal the decision within 30 days.

Understanding the factors that influence IRS settlement amounts and the eligibility criteria for an OIC is crucial for making informed decisions. By carefully preparing your application and presenting a reasonable offer, you can increase your chances of successfully settling your tax debt with the IRS. Remember to seek professional guidance from a qualified tax attorney or accountant if you have complex tax issues or need assistance with the OIC application process.

Tax Debt Relief EXPLAINED: How to SETTLE With the IRS [BY YOURSELF]

FAQ

Does the IRS ever settle for less?

An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles a taxpayer’s tax liabilities for less than the full amount owed. Taxpayers who can fully pay the liabilities through an installment agreement or other means, generally won’t qualify for an OIC in most cases.

What is the average IRS offer in compromise?

People of all ages and incomes are waking up to the power of an OIC. In 2017, the IRS accepted 25,000 of 62,000 proposed Offers in Compromise. That’s a 40.3% approval rate, amounting to almost $256 million. The average dollar amount of the accepted offers was $10,234.

Will the IRS take a lump sum settlement?

Negotiating a settlement directly with the IRS may also be an option in certain situations. This involves proposing a lump sum payment that is less than the total amount owed. Keep in mind that the IRS is generally more inclined to consider this option if there is doubt about the collectibility of the full debt.

How much will the IRS forgive?

The IRS is waiving roughly $1 billion in late-payment penalties for millions of taxpayers with balances under $100,000 from returns filed in 2020 and 2021. Penalty relief is automatic, however failure-to-pay fees for unpaid balances from 2020 and 2021 will resume April 1, 2024.

Can the IRS settle back taxes for less than you owe?

A Guide to Compromise The IRS may settle your back taxes for less than you owe. This is called an Your offer must consist of the highest amount the IRS can reasonably expect to collect from you over the next ten years. Applying for an offer in compromise requires documentation of your assets, income, and expenses.

Can an IRS offer in compromise help you settle tax debt?

IRS offers in compromise can help you settle tax debt for less than you owe, but they’re difficult to qualify for. The application process can take quite a long time, but these offers can be a huge help if you’re struggling to get out from under a debt load. An IRS offer in compromise enables you to settle tax debt for less than you owe.

Can you settle your tax debt for pennies on the dollar?

Advertisements about “settling your tax debt for pennies on the dollar” typically refer to the process of applying for an IRS offer in compromise, or OIC, which is an IRS program designed to help people pay at least some of their tax debt. But statistically, the odds of getting an IRS offer in compromise are pretty low.

Can I settle my taxes if I owe more?

Tax settlement is a possibility if you owe more than you can afford to pay in back taxes. The IRS will consider whether paying your taxes would create a financial hardship by reviewing documentation about the value of your assets, your income and projected future income, expenses, and ability to pay.