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What Percentage Will The IRS Settle For?

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The common belief is that the IRS never agrees to settlements, but what most people don't know is that they are willing to accept a portion of the amount you owe to avoid drawn-out litigation.

When it comes to your taxes, there is a lot of negotiating that goes on between the Internal Revenue Service (IRS) and taxpayers. You might be asking yourself, what percentage will the IRS settle for? The answer is, it depends. Every situation is different and the IRS will take all of the relevant facts into account before deciding. However, some guidelines can give you an idea of what to expect. So, read on to learn more about how the IRS settles tax debts.

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Taxes that are not subject to withholding are estimated throughout the year and paid to the IRS, these are called estimated taxes. Some examples of taxable income include earnings from self-employment, interest on savings, dividends from stocks, rent payments, and profits made from selling assets. You might also be subject to estimated taxes if the income that is being subjected to withholding doesn't have enough tax withheld from your paycheck.

A penalty may be incurred if not enough tax is paid throughout the year through withholding or estimated payments. This penalty can be completely avoided by simply paying less than what you currently owe for the current year, or what was shown on your return from last year--whichever is smaller. If your AGI from last year surpassed $150,000 ($75,000 if married filing separately), then you must pay 110% of taxes owed from last year.

You generally make estimated tax payments in 4 installments throughout the year. The due dates are April 15th, June 15th, September 15th, and January 15th of the following year. You can choose to pay all four installments at once when you file your annual return or make periodic payments as each installment date arrives.

You can avoid getting charged interest and penalties on unpaid estimated taxes by the IRS simply by keeping up with your estimated tax payments throughout the year. Ideal Tax can help you with various tax relief options. Be sure to check them out.

What is an Offer in Compromise?

What is an Offer in Compromise?

The Offer in Compromise program decreases the tax debt of eligible struggling business owners and individual taxpayers. Also called the government tax negotiation program, it has the potential to save users hundreds of dollars by paying less than what is owed (the "deal amount"). Not everyone with tax debt qualifies for this relief opportunity, though.

The OIC is a negotiation or agreement between you and the IRS designed to absolve some, or all, of your debt. To that end, the terms are not dissimilar to those you might find with any other lender. If it can be demonstrated that repaying the full amount owed is impossible, then it's likely the IRS will agree to a reduced sum. Let's say for example you owe $50,000 but there is no way you could repay even half of that within 10 years (the statute of limitations after which time the debt would be unenforceable).

What Are The Qualifications For An Offer In Compromise?

The Offer in Compromise (OIC) Program lets taxpayers who owe the IRS pay less than their original debt. The OIC is an accepted method by the IRS if it's "in the best interest of both the taxpayer and the government." You may be eligible if you:

  • Prove that you can't pay the full amount of taxes you owe
  • Agree to have your offer payments withheld from your wages or bank account, and
  • Not currently in an open bankruptcy proceeding.

If you don't meet these qualifications, your OIC will likely be rejected.

 What Are The Qualifications For An Offer In Compromise?
What Is The Process For Submitting An Offer In Compromise?

What Is The Process For Submitting An Offer In Compromise?

The first step is to figure out which form to submit. If you're an individual, you'll need to fill out Form 656-B. Businesses must use Form 872-A. Once you've completed the appropriate form, gather the required documentation and send everything to the IRS at the address listed on the form.

The IRS will then review your offer and decide. If your offer is accepted, you'll need to make a lump sum payment or set up a payment plan. If your offer is rejected, you can try again with a higher amount or appeal the decision.

It's important to note that submitting an offer in compromise is a complex process. If you're not sure whether or not you qualify, it's best to speak with a tax professional.

How Likely Is The IRS To Accept My Offer In Compromise?

The answer to this question depends on several factors, including your financial situation and the reason for your tax liability. However, the IRS does have a published Offer in Compromise Pre-Qualifier tool that can help you determine if your offer has a good chance of being accepted.

In addition, remember that the IRS is more likely to accept an Offer in Compromise if you:

  • Have filed all required tax returns
  • All estimated tax payments for the year have been completed.
  • If you own a business, have made all required federal tax deposits for the current quarter.
  • Are not currently in an open bankruptcy proceeding

If you are unsure about your eligibility or the chances of your Offer in Compromise being accepted, you should speak with a tax attorney or accountant. They will be able to review your specific situation and offer guidance on the best course of action.

What Are The Possible Negative Outcomes Of An OIC?

The IRS demands an extensive amount of information from taxpayers, and the process can be lengthy. It often takes up to a year for the primary tax filing, and then several additional months if you file an appeal.

The OIC only becomes final if you remain compliant on all taxes for five years- even a tiny mistake gives the IRS the authority to demand full payment of the liability.

An OIC, or Offer in Compromise, also pauses the 10-year statute of limitations for IRS tax collection. So, if it has been six years since taxes were last assessed against you by the IRS, they technically only have four years left to collect from you. However, if your OIC is taking a year to be considered and it gets rejected, the IRS still has those original four years to come after you for payment.