How to Settle Tax Debt? Learn how to settle tax debt with the IRS using an Offer in Compromise.

How to Settle Tax Debt?
Learn how to settle tax debt with the IRS using an Offer in Compromise.


Can you settle IRS tax debt?
Yes. It is possible to settle tax debt for less than you owe with the IRS. You use a solution known as an Offer in Compromise or OIC. This is the solution you may hear advertised that boasts you can “settle tax debt for pennies on the dollar.”
It’s worth noting, however, that the IRS doesn’t just hand OICs out to anyone who requests one. The IRS must have a reasonable expectation that they cannot collect the full amount owed. You basically need to prove that the reduced settlement amount is the maximum amount they can expect to receive.

How to settle tax debt step by step

1.   First you apply for an Offer in Compromise (OIC) using Form 656.
2.   You must pay a $186 application fee to apply.
3.   You must also provide a full financial disclosure that details all your income, expenditures, assets and equity.
4.   For wage earners and self-employed workers, you then must complete Form 433-A the “Collection Information Statement”; you also will need to submit supporting documentation.
5.   The IRS reviews your application package. If it’s accepted, settlement negotiation begins.
6.   You and the IRS come to an agreement of what percentage of your back taxes you can afford to pay back.
7.   Then once accepted, you have 2 years to repay that amount.
You must continue to file taxes for each new year. If you receive a refund from filing within that two-year period, the IRS will apply it towards your settlement.




Are you eligible to settle your tax debt?

Requirements
Restrictions
Your tax filings must be current
You have an open bankruptcy proceeding
You’ve received at least one bill about the tax debt you want to include in the offer
The IRS determines you have the means to pay the full amount with an Installment agreement (IA)
You must make all required tax payments for the current year
You have equity in assets that could be used to pay off any back taxes in-full

If your tax returns are not current and you aren’t current with the payments for the current year, the IRS simply returns your offer.


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