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Hello and thank you for using Just Answer,Unfortunatly, these taxes are not able to be "negotiated down" as you state. What you are suggesting is an Offer In Compromise.
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can't pay your full tax liability, or doing so creates a financial hardship. The IRS connsiders your unique set of facts and circumstances:
If the IRS thinks they can obtain the full amount and OIC is not allowed.
In most cases, the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (the RCP). The RCP is how the IRS measures the taxpayer's ability to pay. The RCP includes the value that can be realized from the taxpayer's assets, such as real property, automobiles, bank accounts, and other property. In addition to property, the RCP also includes anticipated future income, less certain amounts allowed for basic living expenses.Do not believe any claim of pennies on the dollar.
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The answer may appear vague but everything hinges on your assets and income. Your potential to pay is what will be used to determine. There is no dollar amount or percentage that is the magic amount to offer .
what is the best way to go about this process?
Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.
New expert here.
Here is how I would recommend that you proceed:
1.Recognizing that the IRS has a 10 year statute of limitations and that they will permit you to live at the preposterous income after they take from your earnings, 150% of the poverty level for your household size and region, determine how much that is. You will need to do a bit of research on the poverty level for your region.
2.Compare that allowable "living income" to your present income. We will call the remainder a "payable income" and this should be computed on a monthly basis. If this, over 10 years (120 months) will pay off the majority of the tax debt that is the minimum the IRS will accept for an Offer In Compromise. They do not care that you may need to make serious lifestyle changes. It is just not viewed as their problem.
3.Look at your assets. If the IRS determines there is a substantial net worth to be seized they will be willing to do this if other arrangements are not made.
4.Once the above review of your personal life has been made file the returns and begin the Offer In Compromise forms for submission. The IRS cannot compromise any tax debt until the returns are filed and the debt is recorded by them. I will provide a link to an IRS page about the Offer In Compromise program after my remarks.
Remember that a payment plan is better than an Offer In Compromise and that the shorter the period of the payment plan the better. You will also be asked to substantiate that you are taking steps to prevent this problem from happening again. As you go through the material and prepare the forms please feel free to return if you need additional assistance. My next post will include material on both payment plans and offers in compromise.
You can make monthly payments through an installment agreement if you're not financially able to payyour tax debt immediately. However, you will reduce or eliminate the amount of penalties and interest you pay and avoid the fee associated with setting up an installment agreement if you pay your tax bill in full. Before you apply:
Pay the full amount you owe within 120 days to avoid the fee. You should apply online to specify this option (or call if you owe more than $50,000). If you cannot pay the full amount within 120 days, the fee for setting up an agreement is:
To keep your account in good standing:
If you don't receive your statement, send your payment to the address listed in your agreement.
There may be a reinstatement fee if your agreement goes into default. Penalties and interest continue to accrue until your balance is paid in full. If you are in danger of defaulting on your payment agreement for any reason, contact the IRS immediately. The IRS will generally not take enforced collection actions:
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Pub. 594: IRS Collection ProcessExplains the actions IRS may take to recover taxes owed. Download Pub. 594 (PDF)
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can't pay your full tax liability, or doing so creates a financial hardship. We consider your unique set of facts and circumstances:
We generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time. Explore all other payment options before submitting an offer in compromise. The Offer in Compromise program is not for everyone. If you hire a tax professional to help you file an offer, be sure to check his or her qualifications.
Before we can consider your offer, you must be current with all filing and payment requirements. You are not eligible if you are in an open bankruptcy proceeding.
You'll find step-by-step instructions and all the forms for submitting an offer in the Offer in Compromise Booklet, Form 656-B (PDF). You can also view the "Complete Form 656" video. Your completed offer package will include:
Your initial payment will vary based on your offer and the payment option you choose:
If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment and you will not need to make monthly installments during the evaluation of your offer. See your application package for details.
While your offer is being evaluated: