As a tax attorney, I have worked with many individuals and businesses that owe taxes to the IRS and they always ask, how much can I settle my tax debt for? A tax settlement, which is also called an offer in compromise with the IRS is an agreement whereby a taxpayer pays an amount to the IRS that is less than the full amount of the tax debt to satisfy the tax liability in full. Below are some common questions I am asked and answers to such questions. Further, please watch the video below regarding an IRS tax settlement.
1) How much can I settle my tax debt for? It depends. A tax settlement or offer in compromise amount is based off of your ability to pay, not necessarily how much tax you owe.
2) How is my tax settlement calculated? In calculating a taxpayer’s tax settlement amount, you look at equity in assets and disposable income. Equity in assets would be any equity in any asset such as house, car, jewelry, retirement accounts etc. Some assets can receive a discount when calculating the equity. For example, you can lower the fair market value of your retirement accounts by 30% when calculating the equity in such account(s). Disposable income is calculated by taking the taxpayer’s total income less allowable expenses. I state allowable because the IRS states amounts for certain expenses that they will allow a taxpayer to claim.
3) What is the tax settlement equation? The equation if stated mathematically would be: Equity in assets + Disposable income x 12 or 24.
4) How long does it take to settle my taxes? Once you submit your tax settlement proposal (offer in compromise) to the IRS it will generally take 6-12 months to receive a determination. Generally, an individual with W2 income will receive a determination quicker than an individual that has business interests or a business that is attempting to settle their tax debts.
5) Where do I submit my tax settlement? Initially your offer in compromise will be submitted to Holtsville, NY or Memphis, TN depending upon where you live.
6) What are the payment terms of my tax settlement? You can submit a cash offer whereby you pay 20% down when submitting the settlement proposal and then pay the remaining amount (if accepted) in 5 or fewer payment and you propose the date(s) for payment. Or, you can submit a proposal whereby you make payments evenly over 24 months. The first payment is submitted with the offer and each month while the offer proposal is being reviewed you continue to make payments. Thus, if you offered $24,000, you would make a $1,000 payment each month until directed otherwise.
7) What are the other conditions of the tax settlement? Generally, the IRS will keep your tax refund for the year in which the offer is accepted. Further, you must timely file and pay all taxes for generally a 5 year period or the offer can default.
John McGuire is a tax attorney in Denver, Colorado and has successfully submitted many tax debts for his clients. The video below further discusses a tax settlement. If you owes taxes to the IRS, call The McGuire Law Firm to speak with a Denver tax attorney through a free consultation.
