How much will the IRS usually settle for?

You owe back taxes to the IRS and you want to explore options for debt settlement.  

You want to eliminate the outstanding tax debt as much as possible. Luckily, there are options for you to consider.

“How much will the IRS usually settle for?”

For a short answer, the IRS usually settles for whatever amount is feasible for a taxpayer to pay back. 

Why Consider an Offer In Compromise?

Offer in compromise is the most common way to settle any tax debt as it allows you, the taxpayer, to settle for a lesser amount than what you currently owe.

However, if you don’t qualify for an Offer In Compromise (OIC) or if it is not your best first option there are more options you can explore:

  • Installment agreement: is applicable if you can afford paying your current tax debt to the IRS over a specified period of time.

  • Partial payment installment agreement: it is used if the traditional installment agreement can’t be paid without causing financial hardship. 

  • Currently not collectible status: Also known as CNC, and it is only a temporary solution as you are essentially delaying the payments to the IRS to give yourself some breathing room.

  • Bankruptcy: it is usually not recommended as it does more harm than good, unless you are too overwhelmed with all of your tax debt and general debt. 

Qualifying for an Offer in Compromise?

As a taxpayer, you have the option to settle any federal tax debt with an offer in compromise. 

Offer in compromise is the most common way to settle any tax debt as it allows you, the taxpayer, to settle for a smaller amount than what you originally owed.

It is important for you to understand more about how an offer in compromise works and who is eligible. 

You must met the following criteria’s to qualify for an offer in compromise:

  • You must have filed all tax returns
  • You must have received a notice or bill of the tax debt that included an offer in compromise 
  • Up to date with the required tax payment for the current year 
  • No open bankruptcy cases

Important note: The IRS won’t accept any offer in compromise unless the amount offered to be paid by you, the taxpayer, is equal or greater than the reasonable collection potential (RCP). The RCP is the way the IRS measures your ability to pay. 

“What if I don’t settle my tax debt?”

If you decide to ignore the mails and notices received by the IRS, realize that small penalty and interest will start to add up. For example, the late payment penalty will be added until you max out at 25% of your unpaid taxes.  

The IRS does everything possible to get their money back and could potentially start placing:

  • Tax liens on your assets (property, car, investments) 
  • Seizing properties
  • Garnishing your wages until the owed tax amount is paid back in full 
  • Revoking your current passport in some cases

By ignoring the notices by the IRS you are only making it harder on you financially by damaging your credit and your financial reputation.

Before you decide to completely ignore the notices via mail, it is important for you to reach out to the IRS directly or contact Global Gate Taxes who is an expert in helping taxpayers experiencing any financial hardships. 

So What Are Your Options to Settle?

Offer in compromise: Highly recommended as it will allow you to settle for a lesser amount from what you currently owe. You can pay in lump-sum and pay the remaining over an agreed specified period of time. 

Installment agreement: is applicable if you can afford paying your current tax debt to the IRS over a specified period of time. 

Partial payment installment agreement: it is used if the traditional installment agreement can’t be paid without causing financial hardship. 

Currently not collectible status: Also known as CNC, and it is only a temporary solution as you are essentially delaying the payments to the IRS to give yourself some breathing room.

Bankruptcy: it is usually not recommended as it does more harm than good, unless you are too overwhelmed with all of your tax debt and general debt. 

Luckily, the IRS created these options to be able to help the taxpayer by settling for a smaller amount and make doable monthly payment plans without having to pay everything in full.

To find out which of these options is best for you, you will need to contact the IRS directly or if you wish to get guidance by a tax expert, Global Gate Taxes can help you along the way. 

Hopefully you familiarize yourself with all of the best options through this article.