Life can be costly, including paying for a mortgage, student loans, a car, food, and insurance. In addition to these exorbitant costs, Uncle Sam will visit you once a year to demand his share of your hard-earned money. Paying taxes to the IRS may have to wait since these bills are mounting. Although it’s never ideal to be behind on your taxes, it may happen to you. Fortunately, there are ways to use tax relief programs, like an Offer in Compromise, to escape IRS obligations.
Put simply, by paying less than what you owe in taxes, an Offer in Compromise (OIC) can help you obtain tax relief. In this article, we’ll offer advice on Offers in Compromise, including how to get one approved and how much to offer the IRS. So, how low is the IRS willing to go?
You can use the links below to quickly navigate to a section that might offer the Offer in Compromise assistance you require, or you can read on to learn about our offer in compromise advice.
Are you struggling to pay your tax debt? You’re not alone. Millions of Americans find themselves in this situation every year. Fortunately, the IRS offers a program called Offer in Compromise (OIC) that allows taxpayers to settle their debt for less than the full amount owed.
But how much will the IRS usually settle for? It’s a complex question with no easy answer. The amount you can settle for depends on several factors, including your financial situation, ability to pay, income level, monthly living expenses, and personal asset equity.
This guide will help you understand how the OIC program works and how to determine if you qualify. We’ll also explore the factors that influence the IRS’s settlement offer and provide tips on maximizing your chances of success.
What is an Offer in Compromise (OIC)?
An OIC is an agreement between a taxpayer and the IRS to settle their tax debt for less than what is owed. This program is designed to help taxpayers who are experiencing financial hardship and cannot afford to pay their full tax liability.
Here are some key points about the OIC program:
- You must be able to demonstrate that paying your full tax liability would create a significant financial hardship.
- You must be current on all tax filings and estimated tax payments.
- You must not be in an open bankruptcy case.
- You must submit a completed Form 656, Offer in Compromise, along with supporting documentation.
- The IRS will review your offer and make a decision based on your individual circumstances.
Who is eligible for an OIC?
To be eligible for an OIC, you must meet the following requirements:
- You must be able to demonstrate that paying your full tax liability would create a significant financial hardship. This means that you would be unable to meet your basic living expenses, such as food, housing, and clothing, if you had to pay your full tax bill.
- You must be current on all tax filings and estimated tax payments. This means that you have filed all of your required tax returns and made all of your estimated tax payments on time.
- You must not be in an open bankruptcy case. If you are currently in bankruptcy, you will not be eligible for an OIC until your bankruptcy case is closed.
- You must submit a completed Form 656, Offer in Compromise, along with supporting documentation. This documentation will include information about your income, expenses, assets, and liabilities.
How does the IRS determine the settlement amount?
The IRS uses a formula to determine the minimum amount it will accept in an OIC. This formula takes into account your ability to pay, income, expenses, and asset equity.
Here are the factors that the IRS considers when determining the settlement amount:
- Your ability to pay: This is the most important factor in determining the settlement amount. The IRS will look at your income, expenses, and assets to determine how much you can afford to pay.
- Your income: The IRS will consider your gross income from all sources, including wages, salaries, tips, interest, dividends, and capital gains.
- Your expenses: The IRS will consider your essential living expenses, such as food, housing, clothing, transportation, and healthcare.
- Your asset equity: The IRS will consider the equity you have in your assets, such as your home, car, and investments.
The IRS will also consider the following factors when determining the settlement amount:
- The age and health of the taxpayer
- The taxpayer’s dependents
- The taxpayer’s ability to earn income in the future
- The likelihood that the taxpayer will be able to comply with the terms of the OIC agreement
How much will the IRS usually settle for?
The IRS does not publicly disclose the average settlement amount for OICs. However, based on anecdotal evidence, it appears that the IRS typically settles for between 10% and 20% of the original tax liability.
However, the actual settlement amount can vary widely depending on the individual circumstances of the taxpayer. Some taxpayers may be able to settle for as little as 5% of their tax liability, while others may have to pay as much as 50%.
What are the chances of getting an OIC approved?
The IRS approves approximately 20% of all OIC applications. This means that the majority of taxpayers who apply for an OIC are not successful.
However, there are a few things you can do to increase your chances of getting your OIC approved:
- Make sure you meet all of the eligibility requirements.
- Gather all of the required documentation.
- Submit a well-written and persuasive offer.
- Work with a tax professional who has experience with OICs.
What are the payment options for an OIC?
If your OIC is approved, you will have two payment options:
- Lump sum payment: You can pay the entire settlement amount in one lump sum.
- Periodic payments: You can make monthly payments over a period of up to 72 months.
What are the benefits of an OIC?
There are several benefits to settling your tax debt through an OIC:
- You can save a significant amount of money.
- You can avoid the stress and anxiety of dealing with tax debt.
- You can get a fresh start with the IRS.
What are the risks of an OIC?
There are also a few risks to consider before you apply for an OIC:
- You may not be approved.
- You will have to pay a non-refundable application fee.
- You will have to make regular payments to the IRS.
- You may have to disclose your financial information to the IRS.
An OIC can be a valuable tool for taxpayers who are struggling to pay their tax debt. However, it is important to understand the eligibility requirements, the factors that influence the settlement amount, and the risks involved before you apply.
If you are considering an OIC, it is important to speak with a tax professional who can help you assess your eligibility and prepare a strong application.
How to pay your Offer in Compromise
When it’s time to sign on the dotted line and send your payment to the IRS, there are two payment options you can choose between. Additionally, you must pay an application fee of $205. The two payment options include:
- Lump-Sum Cash Offer: Within five months of the offer being accepted, you must pay the remaining amount in five installments or less if you decide to pay your Offer in Compromise with a lump sum payment. You will complete IRS Form 656 with a lump-sum payment and a non-refundable payment equal to 20% of the offer amount plus the application fee. The nonrefundable twenty percent payment will be applied to your tax liability even in the event that your offer is rejected. Additionally, you can designate which tax liability you want the twenty percent payment to be applied to.
- Periodic Payment Offer: After the offer is accepted, you have six to twenty-four months to pay the remaining amount in six or more installments. The first proposed installment payment, Form 656, and the application fee must be sent with your periodic payment offer. Like the initial installment payment for the lump sum cash offer, which is nonrefundable and applies to your tax liability, this payment is also nonrefundable.
Nevertheless, you must continue to make the install payments specified in the offer, which are nonrefundable and apply to your tax liability, which you can specify, while the IRS reviews your periodic payment offer.
You might be wondering which of the two payment offers is best for your situation. Our recommendation for an offer in compromise is to accept the lump sum cash offer. The lump sum cash offer typically results in greater financial savings, as illustrated by scenario one in the preceding section. However, the 24-month option might be the best choice for you if you are unable to pay the 20% down payment and settle your tax obligation in five months.
Furthermore, you may be eligible for the low-income certification or submit a Doubt as to Liability offer if you are unable to pay the $205 application fee, which took effect on April 27, 2020. You must be an individual (and not a company, partnership, or other entity) and fulfill one of the following two requirements in order to be eligible for the low-income certification:
- Your most current taxable year’s adjusted gross income is at or below 250 percent of the federal poverty guidelines as published by the Department of Health and Human Services.
- The gross monthly income of your household over a 12-month period is equal to or less than 250 percent of the Department of Health and Human Services’ published guidelines for poverty.
Community Tax Can Help
Drowning in tax obligations is never ideal. Thankfully, taxpayers in similar circumstances have access to tax relief through the IRS and their Fresh Start Initiative. One such way is through an Offer in Compromise. The knowledgeable experts at Community Tax are available to assist you in creating an effective OIC in order to receive tax relief and start over.
We’ll help you decide which relief option is best for your situation and ensure that every form is accurately filled out with our Offer in Compromise assistance. In addition to offers in compromise, we will consider all of your options for tax resolution, including installment agreements, penalty abatements, and currently non-collectible status.
Give us a call at 844 to begin your journey toward tax relief today. 325. 2970.
Life can be costly, including paying for a mortgage, student loans, a car, food, and insurance. In addition to these exorbitant costs, Uncle Sam will visit you once a year to demand his share of your hard-earned money. Paying taxes to the IRS may have to wait since these bills are mounting. Although it’s never ideal to be behind on your taxes, it may happen to you. Fortunately, there are ways to use tax relief programs, like an Offer in Compromise, to escape IRS obligations.
Put simply, by paying less than what you owe in taxes, an Offer in Compromise (OIC) can help you obtain tax relief. In this article, we’ll offer advice on Offers in Compromise, including how to get one approved and how much to offer the IRS. So, how low is the IRS willing to go?
You can use the links below to quickly navigate to a section that might offer the Offer in Compromise assistance you require, or you can read on to learn about our offer in compromise advice.
How Much Will The IRS Settle For? Surprisingly Low Amounts In Some Cases
FAQ
How much will IRS settle for on back taxes?
Does IRS ever negotiate settlements?
How likely is the IRS to accept an offer in compromise?
How much will the IRS forgive?
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.
What if I owe less than $5,000 to the IRS?
If the amount you owe is less than $5,000, you probably should try to negotiate your tax bill with the IRS directly to arrive at an offer amount. Although tax relief firms are valuable to have on your side when negotiating a settlement amount with the IRS, their cost can outweigh the savings they generate when dealing with small tax debt clients.
What is the federal tax settlement program?
It is also referred to as the federal tax settlement program. When used correctly, it can save you thousands of dollars because you pay less than the full amount due (your “offer amount”).