If you have found yourself in a situation where you have tax debt, you have likely done some research on the various tax debt relief programs that are out there. However, you might be wondering – how much tax debt can be dissolved through a tax relief program? If you have wondered about this, you are in the right place!
To answer the question as simply as possible: it depends. While this may not be the answer you are looking for, please keep reading to let us break it down further!
The amount of tax debt relief a person can receive depends on their financial situation.
For example, let’s say someone owes the IRS 10 million dollars. However, they can show the IRS they do not have any assets, like a home or investment portfolio, and it’s unlikely they will obtain or receive any additional assets moving forward in their life. This person is not married and does not have children, nor do they have wealthy family members or friends who can help them out. On top of it all, this person is chronically ill and on a fixed income. For example, maybe they receive Social Security or disability benefits and, due to their illness, they are unlikely to be gainfully employed in the future. Under these circumstances, the taxpayer could request an Offer in Compromise, asking the IRS to settle the ten million dollars due for a much smaller amount. One example is a case where we helped a taxpayer with a similar situation. He owed the IRS $200,000 and we were able to reduce the amount owed to $100. You can read more about that example
here. For more information about what an Offer in Compromise is, please check out our blog
What is an Offer in Compromise? Tips for Success.
While this is just one example, it highlights how everyone’s situation is unique – so when looking at options for tax debt relief, a tax professional has to consider many different factors: What is the state of the taxpayer’s current financial analysis? Do they have any assets that can be sold, mortgaged, or otherwise leveraged to pay the debt in full? Is the taxpayer expected to inherit or otherwise receive any income or assets in the near future that could satisfy the tax due? What is the taxpayer’s earning potential? Are they gainfully employed? If not, do they have the education, skills, experience, and ability to gain employment and enter into an installment agreement? What are the taxpayer’s necessary expenses? After considering the taxpayer’s necessary expenses, is there any money left for them to make payments towards the balance due? The IRS will also look at the taxpayer’s payment offer. For example, is the taxpayer’s installment agreement request reasonable, and will the balance be paid off before the statute of limitations on collections expires? Generally, the IRS has ten years from the date the tax was assessed to collect the tax and any associated penalties and interest.
For a more realistic example, let’s say you owe the IRS $50,000, but currently are only working part-time and unable to secure full-time employment. You have no assets other than $10,000 in your bank account. You could submit an Offer in Compromise requesting the IRS settle the $50,000 tax due for the $10,000 you have in your bank account. The IRS would do a financial analysis of your income, assets, and necessary expenses, including the money in your bank account. In this example, you would likely qualify for a settlement decision of $10,000 and be able to write off the remaining $40,000 due.
Another example would be if someone owed the IRS $500,000. Let’s say their home was fully paid off and valued at $500,000, they owned a boat worth $200,000 dollars, and they made $200,000 a year. Once the IRS looked at their financial situation, they would not likely settle for any amount less than the full $500,000 owed. In this situation, the taxpayers’ next step would be to see if they qualify for an
installment agreement, so they could make monthly payments on the balance owed.
If you want to take further steps to resolve the tax debt you owe, it is important to review all the settlement options available. In addition to installment agreements and an Offer in Compromise, there are options for an
audit reconsideration,
penalty abatement, or being placed in
Currently Not Collectible status. It is also possible you may qualify for
innocent spouse relief.
The truth of the matter is, there are many different options available to those who have outstanding tax debt – each as unique as the taxpayer themselves. The best way to start your journey to be free of tax debt is to talk with an expert about your specific financial situation and come up with a plan that is catered to you. If you would like a free consultation with an experienced tax professional, or just to learn more,
click here to get started!
