How to settle your IRS debt

Because of the poor economy the IRS has recently changed its rules for settling IRS debts for less than the amount owed. IRS settlements are called “Offers in Compromise,” and they are now much easier to get.

The IRS will accept less than the full amount you owe if you can prove that you can’t pay more than the amount offered. This helps prove that it is in the government’s best interest to accept the offer rather than continue to expend its resources chasing after you.

One of the reasons we have experienced a high percentage of accepted IRS settlement offers is that we only take those cases where the chances are strong that the IRS will accept the offer. This means we have to do some serious analysis before we recommend the filing of an offer and accept a taxpayer as a client.

The great majority of IRS offers are based on what is known as “doubt as to collectability.” In order for the IRS to accept a doubt as to collectability offer, the taxpayer must prove to the IRS’ satisfaction that he cannot pay the debt, including any accrued interest and penalties, in full.

Here are the things that without exception must be analyzed before deciding to file an Offer in Compromise:

• The value of the taxpayer’s assets as compared to the amount of the IRS debt

• The taxpayer’s monthly income as compared to his monthly necessary living expenses

• The taxpayer’s age and prospects for continued employment

• The amount of time the IRS has left to collect the tax debt (statute of limitations)

There are potentially serious consequences to filing a frivolous or meritless Offer in Compromise, including the imposition of a $25,000 “delay” penalty and the extension of the statute of limitations on collection.

You should never file an Offer in Compromise without having a trained and qualified CPA or tax lawyer perform the proper analyses.

There are a number of unscrupulous tax resolution firms out there that promise they can settle your tax debt for pennies on the dollar. It is a violation of the IRS rules of ethics to make such a promise. Do not trust anyone who guarantees you a result, especially if he guarantees you a result before he has made a complete and thorough evaluation of your financial condition.

Peter Pappas is a tax attorney and Certified Public Accountant. He and his Baldwin Park firm, The Pappas Group, have been assisting both federal and state taxpayers with their tax problems for more than 25 years. For more information, call Peter at 407-648-2555, email him at [email protected] or visit PappasTax.com