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How Much Will The IRS Usually Settle For?

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    How Much Will The IRS Usually
    Settle For?

    Table of content:

    It’s tax time again! That time when you’re stressing out about how much you’re going to owe this time around. Whether or not you have all of your receipts and W-2s. It can all feel a bit overwhelming for anyone that’s trying to make sense of their income and loss statements and prepare their taxes, especially if you’re trying to do it all by yourself.

    But there are people out there who have it even harder this time of year the people, like so many of our clients at Ideal Tax Solution, that find themselves up against years of delinquent taxes searching for a way to get out from under it. The truth is that if you’re experiencing this kind of problem and want to find out how you can settle tax debt, there are answers out there to help.

    After all, the IRS isn’t some villain in the movies out to get you. In many cases, they are more than willing to work with taxpayers to come up with a fair pay-off plan that allows you to settle tax debt and start living your life again. First, however, you have to put in some time and effort to understand the tax relief cost to you and your future and the entire process of getting approved for your Offer In Compromise.

    Fortunately, the IRS approves countless Offers In Compromise every year with taxpayers to cover their delinquent taxes,

    How much will the IRS settle tax debt for?

    That’s exactly what the tax specialists at Ideal Tax wanted to discuss with this article today. We are here to help you navigate the complicated, red-tape-filled, and overwhelming process of applying for your Offer In Compromise and how to know how much you will need to settle. In addition, our tax pros are here to help you solve your IRS tax problems once and for all.

    In this article, How Much Will The IRS Usually Settle For, we’re going to take a deep dive into everything you need to know about what an Offer In Compromise is, how to qualify and apply for it, and what you can expect in the amount of money you’ll need for your lump-sum settlement offer. The tax pros at Ideal Tax have also put together some quick and easy expert tips to understand more about what offer amounts are typically accepted and how you can maximize your success so you can be well on your way to living the tax debt-free life you deserve.

    Are you ready to find out how to simplify your Offer In Compromise to get the best settlement offer? 

    You may find yourself wondering how often the IRS agrees to settle for a lump-sum payment offer that a particular taxpayer makes. It’s good to remember that the IRS is not out to get you, and they’re especially not out to keep you in debt for the rest of your life. That’s just a poor business model for any of their tax debt relief programs.

    When you apply for an Offer In Compromise, you’re asking the IRS to decrease the tax obligation that you owe in exchange for a lump-sum payment amount. Of course, they’re going to work with you to help create the most effective and efficient pay-off plan for your delinquent taxes and tax debt.

    But how realistic is it that they’ll approve my settlement? 

    In 2020, the average Offer In Compromise that the IRS approved was $16,176. However, it’s essential to know that number is completely meaningless for the most part. Because your situation is different from that average, and no two settlements are the same when it comes to the IRS. The real question here you’re trying to answer is, “how much will the IRS usually settle for in my case?” Not some nationwide average. To figure out how much of an offer you need to ensure that the IRS accepts it, you first must understand how the IRS determines your eligibility for an Offer in Compromise and how it identifies the least amount for an acceptable deal.

    What is an Offer in Compromise?

    The Offer in Compromise program is a useful and powerful tax relief program that the IRS created to help decrease the amount of fighting they were doing with entrepreneurs and individual taxpayers. You may have also heard this program referred to as the government tax negotiation program. When you take advantage of using it effectively, it’s designed to save you hundreds, if not thousands, of dollars, being that you pay less than the total amount of tax debt you owe. However, not everyone who applies for the program with tax debt gets approved for the program.

    When you think of the Offer in Compromise, it’s good to remember that it’s essentially a negotiation between you and the IRS. Consider them your lender in the case of your settlement. You need to convince them that you cannot manage to pay back your entire debt. Ultimately, a debtor prefers to get something because it’s far better than getting nothing back.

    For instance, let’s say that you owe the IRS $50,000 in back tax debt, and there’s no realistic way that you can pay them back before the 10-year statute of restrictions. What is the statute of limitations? It’s essentially the period when the IRS needs to collect taxes. Back to your $50,000 in tax debt. If you can’t pay it back in 10-years, then you have two options available to you:

        • You can suffer the 10-year law of limitations
        • pay an OIC.

    While just sitting around and waiting for the statute of restrictions to expire may sound appealing at first, it’s not as glamorous as it sounds. After all, the IRS has the power to take control of all your possessions, including your salary as well as savings, even your house. Moreover, the impact of all of those losses and the effect on your credit over ten years last far longer than just those ten years.

    Ultimately, the danger of just waiting it out is far too high. So applying for a deal in compromise is a much simpler solution in the long term, especially since the IRS will have to evaluate your collection potential when you apply.

    What are the chances that the IRS will approve my Offer in Compromise? 

    It’s important to understand that not every Offer in Compromise that’s applied is accepted. In fact, in 2019, the IRS received 54,225 applications for offers in compromise and they only accepted 17,890 of them. So that’s a success rate of approximately 33% when you apply for an offer in compromise.

    When you trust your Offer In Compromise application process to the tax relief specialists at Ideal Tax Solution, you’ll have a better chance of getting your offer in compromise approved. Why is this? Because we have the experience and expertise needed to create better applications and discrepancies that can cause your application to be denied. We can tell you after your initial consultation with one of our tax experts whether or not you meet the requirements and how realistic your chances are that the IRS will say yes.

    So, how does the IRS calculate the minimum offer it will accept?

    The IRS uses a specific yet seemingly simple formula to calculate your Offer in Compromise. They use a two-step process based on your monthly earnings and the worth of your possessions. Using those two factors, the IRS determines, what they call, “sensible collection possibility.”

    Let’s take a deeper look at all of the elements that go into calculating your Offer in Compromise and the ability to pay back your tax debt.

    It starts with your cash flow.

    When they’re first looking at your ability to repay your tax debts, the IRS needs to identify how much you’re able to pay each month. Think of this as them considering if you were to do a layaway or installment plan to buy an appliance or something as what they’re looking at you can afford. The internal revenue service will review your pay stubs or current earnings to verify your income to calculate this amount. For instance, if you own a small business, they will also request any loss declarations that apply to your case.

    You must communicate the actual amount of all of your allowable living expenses to the internal revenue service. These include everything from real estate, utilities, car (non-luxury) payments, food, and clothing. However, it’s essential to understand that during your Offer In Compromise process, the IRS may require you to limit your living costs to the degree to which it feels is sensible.

    Then comes your capacity to pay.

    Once they’ve figured out your cash flow, losses, and expenditures, the IRS will now use all of that data to evaluate your capacity to settle tax debt. It’s this same formula that identifies your month-to-month disposable income that is used to determine your actual offer amount for your Offer in Compromise.

    Next up is property appraisal.

    Remember that we said the IRS would look at everything, including the possessions you have to try and get value out of them to repay delinquent taxes? This is where property appraisal comes into play.

    As part of your OIC process, the IRS will estimate the worth of your possessions and property. The property consists of groups such as your car, home, retirement plan, jewelry, and any other kind of family members’ belongings.

    How are my possessions valued? 

    First, the IRS will subtract any type of home loan or funding you carry for every asset you have and lower its value by 20%. So, for instance, if you have a home that’s worth $200,000, but you still owe $195,000 on it, the IRS will consider your offer quantity for your residence at $4,000. How? Simply take the $5,000 in the actual value of your house times 0.8. This same formula and approach are how they will identify the value of every loan, car, and piece of property you have.

     

    What settlement techniques do the IRS approve for offers?

    The IRS lists many different payment alternatives for taxpayers on its website. For example, you can pay your OIC by check or money order made payable to the USA Treasury. You may also make your settlement(s) via the Electronic Federal Tax obligation Repayment System (EFTPS) website.

     

    What does an Offer in Compromise success story look like?

    The truth is, as you’ve seen, not all Offers in Compromise are approved by the IRS. In reality, only 3 out of every ten are approved. However, there are many success tales for taxpayers wanting to lower their tax debt using the offer in the compromise program. It just takes a little research to find that there is light at the end of the tunnel in your tax relief cost journey.

     

    What if I want to be considered a low-income entrepreneur with tax debt?

    If you own a small business and have racked up tax debt on both your business taxes and your tax returns over the years, it’s essential to understand how you have to pay the IRS. And it all depends on the structure of your service and business.

    One of the most important forms you will want to use is Form 656 if your business is linked to your social security number and classified as a sole proprietorship. However, if your company is not classified as a sole proprietorship, you will have to submit a different application and payment.

    The good news is that the updated Kind 656 includes a brand-new low-income qualification process. And if you can qualify for the low-income condition, you’re not required to send any payments when you submit your application or for your deal to be considered by the IRS.

    Now, we get to the fun part of this article.

    What are some common reasons I would be denied my Offer In Compromise?

    There are quite a few reasons that the IRS may decide not to accept your offer in compromise. They include:

        • Your ability to pay your tax debt in full.
        • You have filed for bankruptcy.
        • You’ve committed fraud or other crimes.
        • Your debt is less than $10,000.
        • Within the last five years, you’ve accepted an installment agreement or payment plan for the same tax type.
        • You have the financial ability to pay less than what you owe in a lump sum. However, if you’re experiencing financial hardship and can’t pay anything toward your debt, you may qualify for an offer in compromise.

     

    How much should I offer the IRS? 

    Every offer depends on the factors we’ve discussed above in the article. You have to take the same approach that the IRS does to figure out your ability to pay and how likely it is that they can get some of their money back.

    Once you do the math and work their formula, you will have a better idea of a fair and reasonable offer that has the best chance of being accepted. But in all honesty, the best approach to settle your tax debt is to call a tax relief specialist like Ideal Tax Solution.

    What happens after I send my offer in compromise?

    After submitting your offer in compromise, you won’t hear anything from the IRS for several weeks. If they reject your offer, they will include detailed information about why they have done so. There are some cases where you will need to submit additional documentation or information to back up your reason for filing. For instance, if you are requesting an OIC because you’re unable to pay because you’re unemployed, you will need to include a letter from your state’s unemployment agency proving such.

    What happens if the IRS approves my offer in compromise?

    If you can have your offer accepted by the IRS, you will then be responsible for paying your outstanding tax debt and any associated interest and penalties in a lump sum payment within 45 days from approval. And when you do that, the remaining debt will be forgiven.

     

    A Tax Professional Helps You Understand Your OIC Options.

    If you’re uncertain if you qualify for an offer in compromise, you want to be sure to speak with a tax professional. They can help you understand the process and determine if you have a reasonable chance of being accepted.

    Being indebted to the IRS for back taxes is a stressful experience for anyone, but that doesn’t mean you have to go through it alone anymore. The tax specialists at Ideal Tax Solution have the experience and expertise to help you submit a successful offer in a compromise application. We work closely with you to understand your situation and help you identify if you have a chance of being approved for your Offer in compromise.

    If you’re searching for tax relief and considering making an offer in compromise, the best thing to do is to reach out to the tax professionals at Ideal Tax Solution today. We are here to walk you through the entire OIC application process, identify your chance of success, and help you solve your tax problems once and for all.

    Call us to find out how we can take the stress and worry away around your tax debt today!

    We provide professional guidance to people whose lives have been affected by tax problems. To evaluate your specific tax issue and determine if you qualify for tax relief,  please contact us for a free consultation. We are COVID-19 prepared, we will work with you over the phone and via e-mail.

    The content of this post does not replace the advice of a licensed tax professional. Consult a qualified tax professional for questions specific to your circumstances.

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    Tax Relief, FAQ

    What Is Tax Relief?

    Tax Relief is about setting up a payment schedule or negotiating a settlement with the IRS. This is not about getting rid of your tax obligations. It’s more about helping you to pay off your tax debt. 

    How To Find The Best Tax Relief Help?
    • Are they qualified to offer tax relief services? While the IRS requires that a representative be licensed as an attorney, CPA, IRS Enrolled Agent or attorney, that doesn’t make them eligible to provide such services. Tax relief is a highly specialized area in tax law. It is crucial to ensure that the professional or firm you choose has the experience and knowledge necessary to provide the best results.
    • Are the tax professionals licensed to own the company? There have been many tax relief companies that have emerged to capitalize on the growing demand for their services. However, they may not adhere to the legal and ethical compliance requirements of professional licensure. There can be a temptation for firms not to adhere to the rules of licensed ownership. This could lead to a tendency to prioritize sales goals over ethical business practices.
    • What’s their reputation? This is a difficult question because companies who promote themselves online will put information that they want you to see, and exclude the information they don’t. It is important to use objective and independent sources. To see what customers have to say about their experiences with a company, check out the Better Business Bureau and Ripoff Report. Avoid sites such as “Best of”, where companies pay to be included in a positive manner.
    Tax Attorney, CPA Or Enrolled Agent?

    Experience and performance are more important than any type of license to provide the best representation. A Tax Attorney can represent taxpayers in Federal Tax Court. However, very few cases involving back tax end up there. Most cases can be resolved by the IRS administrative process. It is therefore important to hire a representative who is both familiar with the Internal Revenue Manual, IRS Tax Code and is skilled in applying the rules. It is important to be able to talk to the potential representative and not just a salesperson to make the best decision.

    How Much Does Tax Relief Cost?

    Tax relief services can cost anywhere from a few hundred to thousands of dollars. It all depends on the type and number of services you need. The cost of tax relief services can also vary depending on the person you choose to represent you and how they bill you.

    Will I Qualify For A Tax Settlement?

    The IRS is the only entity that can make the final decision. However, qualified tax relief professionals can help you determine if your situation qualifies for the program. Our CPAs, EAs have been able to determine whether clients are eligible for the program with an accuracy of more than 90%. OICs that are successful average savings of 95% on the balance owed.

    Will Tax Relief Solve My Tax Problem?

    Reputable tax relief companies will conduct a thorough assessment of your situation with licensed tax relief professionals. They will assess your situation and determine the best programs for you. If done correctly, you will get a clear idea of what is possible.

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