Can I Settle My Tax Debt for Less?
Yes, through an Offer in Compromise. But it is not as easy as the TV ads make it sound.
An Offer in Compromise lets you settle your IRS debt for less than you owe. The IRS calculates your Reasonable Collection Potential — what they think they can actually collect from you — and will accept offers at or above that number.
The IRS accepts about 30-40% of OIC applications. The acceptance rate for professionally prepared applications is higher. The key factors: your income, your expenses (using IRS allowable standards), your asset equity, and how much time is left on the collection statute.
The Reality Check
If you earn $80,000 a year and owe $40,000, an OIC probably won't work. The IRS can collect the full amount through a payment plan. But if you earn $40,000 and owe $200,000, the math often works in your favor.
Beware of companies that promise "pennies on the dollar" without analyzing your specific numbers. That's a red flag.