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How Much Will The IRS Usually Settle For?

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How Much Will The IRS Usually Settle For?

How Much Will The IRS Usually Settle For? Navigating tax debt can be overwhelming, especially when dealing with the Internal Revenue Service (IRS). However, if you find yourself in this situation, you might wonder: How much will the IRS usually settle for? IRS tax settlements offer a potential solution for taxpayers struggling to pay off their debts. In this article, we’ll delve into the intricacies of IRS settlements, exploring what they entail and what factors influence the amount the IRS may agree to settle for.

How Much Will The IRS Usually Settle For?

IRS typically settles for only what it deems reasonable. You will be assessed based on your assets (home, car, etc. ), your income, your monthly expenses (rent, utilities, child care, etc. ), and your savings. Around $5,240 is the average settlement on an OIC.

What is an IRS Tax Settlement?

An IRS tax settlement, commonly known as an Offer in Compromise (OIC), is an agreement between the taxpayer and the IRS that allows the taxpayer to settle their tax debt for less than the full amount owed. It provides a legitimate option for individuals facing financial hardship or those unable to pay their tax debt in full.

Factors Influencing IRS Settlement Amounts

Several factors influence how much the IRS will settle for in a tax debt negotiation. These factors include:

  • Taxpayer Ability to Pay: The IRS evaluates the taxpayer’s ability to pay based on their income, expenses, assets, and overall financial situation.
  • Income: The IRS considers the taxpayer’s current income, including wages, self-employment earnings, and any other sources of income.
  • Expenses: Allowable expenses such as housing, transportation, healthcare, and basic living expenses are taken into account to determine the taxpayer’s reasonable living expenses.
  • Asset Equity: The IRS assesses the equity the taxpayer holds in assets such as real estate, vehicles, investments, and other valuable possessions.
  • Future Income Potential: The IRS may also consider the taxpayer’s future income potential when determining the settlement amount.
See also  IRS Underpayment Penalty

Types of Offers in Compromise

There are three types of Offers in Compromise:
  • Doubt as to Liability: This type of OIC is based on the belief that the taxpayer does not owe the full amount of tax debt assessed by the IRS.
  • Doubt as to Collectibility: This OIC is the most common and is based on the taxpayer’s inability to pay the full tax debt due to financial hardship.
  • Effective Tax Administration: This type of OIC is for taxpayers who can afford to pay the full amount but would face economic hardship or exceptional circumstances if required to do so.

Process of Applying for an Offer in Compromise

  • Eligibility Determination: Taxpayers must meet specific eligibility criteria, including filing all tax returns and making estimated tax payments for the current year.
  • Submission of Offer: Taxpayers must submit a completed Form 656, along with a $205 application fee (as of 2024), and provide detailed financial information to support their offer.
  • Evaluation by the IRS: The IRS evaluates the offer based on the taxpayer’s ability to pay, income, expenses, asset equity, and future income potential.
  • Acceptance or Rejection: The IRS will either accept, reject, or counter the taxpayer’s offer. If accepted, the taxpayer must adhere to the terms of the agreement to maintain compliance.

Conclusion

While the question, “How much will the IRS usually settle for?” lacks a definitive answer, understanding the factors that influence IRS tax settlements can provide insight into the negotiation process. Taxpayers facing financial hardship or struggling to pay their tax debt should explore the option of an Offer in Compromise with the assistance of a qualified tax professional. By taking proactive steps and engaging in open communication with the IRS, taxpayers can work towards resolving their tax issues and achieving financial peace of mind.

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