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Can the IRS Settle My Taxes for Less Than What I Owe? Yes – If Your Circumstances Fit.

2 min read

2 min read

The IRS does have the authority to write off all or some of your tax debt and settle with you for less than you owe. This is called an offer in compromise, or OIC.

But beware: OICs are usually rare

In fact, there are more than 16 million individual taxpayers who owe the IRS – but in 2017, only 25,000 got an OIC. Most people are better off requesting other IRS options, like IRS payment plans, or “currently not collectible status” – where your allowable expenses exceed your monthly income.

You’ll have to prove you can’t pay

To qualify for an OIC based on “doubt as to collectability” (that’s IRS speak for, “You owe, but you don’t have the money to pay.”), you have to prove to the IRS that it can’t collect all the taxes you owe before its time runs out. This deadline is called the collection statute expiration date, and it’s usually 10 years after the IRS charges you (or, “assesses”) the taxes.

Practically, this means that your net equity in your assets (home, 401(k), savings, investments, etc.) plus your monthly disposable income (your average monthly income minus your allowable monthly living expenses) is less than the tax you owe.

The IRS determines your net equity in assets and monthly disposable income using specific rules to value your assets and determine what living expenses are allowed.

OICs can get complicated

Even if you qualify for an OIC, remember that you still have to be able to pay the amount needed to settle the tax bill. This is called the “offer amount.” This