I have written and talked at length about how to settle your IRS debt for less than what you actually owe. This is known as an Offer in Compromise. I have written another blog post about the formula that the IRS uses. That formula is still very much used by the IRS. This goes to the very heart of whether they will settle with you and for how much. Settling with the IRS is based on your “ability to pay.” Today I want to give you some real life examples. Over the last 10 days, I have settled three different cases with the IRS. I believe my discussion will give you a “feel” of how their process works. The names have been changed but the facts are accurate.
MARK THE ATTORNEY
An Attorney lives and practices in a Suburb of a larger Metropolitan area. He is 45 years old. He is divorced with four children. He owed the IRS over $220,000.00. We were able to settle his claim with the IRS for $91,000.00. Mark owns two pieces of real-estate, his home and a rental property. He has little to no equity. Mark makes a fairly good income; it varies from year to year. The IRS primarily focused on his income for the three months, just before we submitted the offer. Mark also has some substantial expenses. Some of them fall within the “allowable” guidelines and others do not. Mark also has a substantial child support bill because he is divorced. This tax is to support his allowable item under the IRS guidelines regardless of the amount.
Mark’s initial offer of the IRS was $60,000.00. The IRS countered at $113,000.00. After several weeks of negotiation, a settlement was ultimately struck at $91,000.00. This was a cash offer, meaning that Mark had to submit 20% of his offer upfront. Once the deal was struck, he was given five months to pay the balance of the offer.
An unemployed school teacher with experience, but lost her job. She is 38 years old. She is single with no children. She is living with her parents because of her unemployment. She has no assets in her name and no income other than unemployment income. She owes the IRS $17, 000.00. We were able to settle with them for $1,000.00.
JEFF THE HANDY MAN
Jeff has some college, but did not graduate. He has mostly worked in blue collar jobs. He is currently 54 years old. He works for one of the big box retailers for $15.00 an hour. His tax problems came about because for awhile he was self employed and he did not understand how to pay estimated taxes and fell behind. He had no assets that had equity, nor things that the IRS can force him to borrow or sell. Upon all his monthly income expenses, he would $75.00 left after paying all of his bills. He owes the IRS a little over $43,000.00 and we were able to settle his claim for $6,000.00.
The commercials you hear on Television by those big companies make it sound as though it is easy and automatic. It is not. The good news is, it is real and it can be done. I have given you these stories so that you will get a feel for how it works. But remember, you cannot determine what you can settle for based upon what someone else settled for. There is a standard settlement or standard percentage. This is based on your “ability to pay.”