If I want to settle my past due I.R.S. taxes with the IRS, how much will they want to settle?

It's hard to say without information about your income, expenses and other information about your situation. But the IRS has a new "Pre-Qualifier" tool that you can use to get an idea of how much it would take to settle with them.

An "offer in compromise" or OIC is what the IRS calls a settlement of your taxes. With an OIC, you are making an offer to the IRS to settle your taxes for less than the full amount due.

How much will they take? It's not a random amount, you just can't throw out a number, like $1000.00. The amount that the IRS will take to settle your delinquent taxes is based on what assets that you own, what your income and living expenses are, and other factors. They can even consider "special circumstances," if there is something special about your situation that would show them that you can't pay very much, such as if you were very ill, for example. 

Regarding the amount of your living expenses, you just can't put down any old amounts. The IRS has their own idea of what your living expenses should be, based on where you live and how many are in your family. And getting the IRS to accept an OIC that you make, may or may not be affordable for you. But it is a lot more affordable then it used to be. Recently, they changed their rules to make it much more affordable to people to settle their tax debts.

But you have to be careful making an OIC. If you submit one, you must pay 20% of the amount offered, with the offer (unless you are very low income). And you don't get that back, even if they reject your offer. If you make an OIC and propose to pay the offered amount in installments, you must start paying the 24 monthly installments, which again, you don't get back even if they don't approve the offer.

And filing an OIC "tolls" or stops the running of the "Collection Statute Expiration Date" or CSED, so the IRS has longer to collect the taxes from you, if the OIC is either rejected, or if you later default on it. Filing an OIC can also affect when income taxes can become dischargeable in bankruptcy, if you are considering doing that in the future, or if you are considering filing bankruptcy because of other debts.

Regarding default, part of an OIC agreement is that you must be a perfect taxpayer for 5 years after the acceptance of the OIC. If you fail to timely file tax returns or fail to timely pay all that you owe, your OIC can be "defaulted" and the OIC is cancelled, and they keep all the money that you paid (you get credit for it, but they add in all the penalties and interest that would otherwise have accrued). Some of my clients are just not good OIC candidates for this reason; they just can't seem to stay current with their tax responsibilities, try as they might.

Also, by filing an OIC, you are giving the IRS a "blueprint" or list of everything that you own. So if the OIC is not successful, and you cannot work out anything else with them, and don't file bankruptcy to stop their collection activiites, well, they know exactly what you own and where it is, making it much easier for them to seize it. The IRS can take (most of) your wages, for example, even here in Texas where wage garnishment is not allowed for most debts.

It is possible to file an OIC yourself, without help, but as you see above, there is a lot more to it than just filling ouit the forms. If you want help, hire an attorney, C.P.A., or an "enrolled agent" that is experienced in these matters. If you owe income taxes that are more than 3 years old, they may be dischargeable in bankruptcy, so if you want to know more about that, a bankruptcy attorney would be your best choice.

But if you want to get an idea of whether or not you would qualify for an Offer in Compromise, and how much the IRS may want from you to settle, go the the IRS Pre-Qualifier tool and try it out. For help with IRS problems, call our office at 713-772-8037. There is no charge for your first visit with one of our attorneys.

J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization