An IRS settlement of tax debt usually entails settling tax debt through an Offer In Compromise (OIC), payment plans, or penalty abatement. Of all the settlement options, the OIC is most commonly associated with settling tax debt since it allows taxpayers to legally settle tax debt under certain conditions for less than the expected full settlement amount.
How the IRS Determines Settlement Amounts
The IRS’ settlement decisions are primarily based on reasonable collection potential (RCP). This is determined through your collections income, your expenses, your living situation, and your ability to earn money in the future. If the IRS thinks it will not be able to collect the full balance within the legal time limit, they may agree to an offer of compromise settlement.
The IRS takes into account your real estate, investments, and bank account assets. They analyze your monthly income and expenses (lower than the IRS standard is allowed). If your financial situation is poor, the settlement amount would be less than the total debt you owe.
Typical Settlement Ranges
An IRS settlement typically has no set percentage that they can agree on. Usually, the IRS will settle on an amount between 10 - 40% of the total tax debt. Depending on the situation, IRS settlements can vary. In cases of extreme financial hardship, the IRS can even settle for less than that although it can be more difficult to qualify for these settlements. People that do have a regular source of income or have valuable assets may not qualify for a reduced settlement at all.
Also, any advertising that claims “pennies on the dollar” settlements are more than likely not true. Due to the fact that the IRS is very restrictive with approved OIC programs, these claims are more than likely not true.
Would you like a tax settlement with the IRS and have tax relief? Speak to a tax professional and find out how to settle on a tax relief balance with the IRS, and the tax settlement amounts the IRS will present.
