Dealing with IRS debt can feel like a never-ending process. So, when you see those “settle for pennies on the dollar” ads, it can be appealing. Can you really settle IRS tax debt for pennies on the dollar? That is not always the situation for most taxpayers.
In the case of it sounding too good to be true, this might fall into that category. Here is a look at what settling pennies on the dollar could mean and why there may be better options for you.
What Do These Programs Mean for Average Taxpayers?
You might hear that phrase come up, especially when talking about an Offer in Compromise (OIC). This is a program through the Internal Revenue Service. It allows certain taxpayers to settle their debt for less than the full amount owed.
That sounds great. However, it is not a shortcut or a negotiation free-for-all. The IRS will not pick a number out of a hat. They look closely at your financial situation to decide what they believe you can realistically pay.
If the IRS thinks you can pay your full balance over time, they will not accept a reduced settlement.
Who Can Qualify for a Reduced Settlement?
The IRS approves Offers in Compromise if you fall into these situations:
- You cannot pay the full amount now or through a payment plan
- Paying would create serious financial hardship
- There is doubt about whether the tax debt is correct
In these cases, they will review your income, expenses, assets, and future earning potential. The IRS looks at everything. This includes:
- Bank accounts
- Home equity
- Vehicles
- Retirement accounts
If you have the ability to pay, you will be steered toward a payment plan.
Why Most People Don’t Qualify
Those flashy ads do not tell the truth. Most taxpayers will not meet the strict criteria for settling their debt for less.
If you have a steady income, manageable expenses, or assets the IRS believes could be used to pay the debt, your offer may be rejected. That does not mean you’re out of options, but a “pennies on the dollar” settlement is not one of them.
What Your Real Options Might Look Like
Even if you do not qualify for an Offer in Compromise, you still have legitimate, workable ways to manage IRS debt. With that, you can get back to a position where the debt is under control and no longer hanging over you.
- Installment Agreements: Monthly payment plans that are based on what you can reasonably afford. Once you are set up, collection pressure eases. You can chip away at the balance in a structured, predictable way.
- Currently Not Collectible Status: If your financial situation is tight, the Internal Revenue Service may temporarily pause collection efforts. This does not erase the debt, but it can give you breathing room to stabilize your finances.
- Penalty Abatement: In some cases, you may be able to reduce or remove penalties. You must have a valid reason, like a first-time issue or circumstances outside your control.
These options might not sound as good as “pennies on the dollar,” but they are more attainable.
How To Know If You Qualify
The best way to know where you stand is to take a look at your financial situation. You may want to have a qualified tax professional or an experienced tax debt lawyer do this for you.
If you are considering an Offer in Compromise, you need to be prepared. You will have to provide detailed documentation and go through a thorough review process. This is not quick. However, it can be worth it if you qualify.
You Have Options for Your IRS Debt
Yes, settling IRS tax debt for “pennies on the dollar” is real. But unfortunately, it is not available to everyone.
The IRS tries to collect what it reasonably believes you can pay. If your financial situation shows that you have the means, even over time, a full settlement is unlikely.
This is the time to focus on your situation, not what sounds good in an ad.
When you have a better picture of your options, this process becomes more manageable. At Easter & DeVore, Attorneys at Law, we can help you find the right options to manage your IRS tax debt. Schedule a consultation today to learn more about how we can assist.
