Can’t Afford Your Tax Debt? You May Be Able To Make A Compromise With The IRS

For those who cannot pay the entire amount in taxes, the internal revenue service provides qualifications to the tax payers to settle their tax loan for less than the full amount.

This is called “proposal in the agreement”, and IRS will generally approve a settlement proposal. If it “most (they) represents (they) can expect to collect within the appropriate period.” However, IRS does not approve all applications. In 2024, the IRS approved 21% of its approximately 33,600 proposals in the agreement applications.

Investopedia spoke to Kesha Dawson Harris, an agent enrolled about the process of making a compromise. The enrolled agents are federally obtained licenses and can represent taxpayers before IRS. The interview has been edited for brevity and clarity.

Investopedia: How does IRS calculate tax loan amount that a person can pay back?

Kesha Dawson Harris: The proposal in compromise calculator will usually give you an idea of ​​the type of questions asked by IRS.

This is a very intensive process, and many people know that you are actually opening yourself financially for IRS. To qualify for a proposal, they are going to ask about all your income, your domestic expenses and any property you have.

Most people think that it is like a television show, “Let’s make a deal.” Like, ‘Oh, I pay IRS $ 10,000, I am going to offer them $ 100.’ It does not actually work like this. This is truly a formula.

Another thing with the proposal in the agreement is that they use national standards consider. So you can be in an apartment and you are paying $ 1,600 a month. Well, the national standard for an apartment in your area can be $ 1,200. Then IRS can say, ‘We will not allow other $ 400; The national standard for your area is only $ 1,200. ,

Then it depends on someone like me to go in and defend it. Show a copy of the lease, and show them why you live in this area.

Investopedia: How long does the process usually take, and do taxpayers have to start repaying their debt while compromising?

Harris: Everything is presented until you get any response, I usually tell people that it is going to take anywhere between eight and 10 months. Then, depending on whether it has not been accepted, it may take a little longer, but the IRS has up to two years to respond.

Depending on what you offer during this time, you can pay for your proposal. So suppose you offer $ 1,000 and you tell the IRS during this time limit, I am going to pay $ 100 per month. ‘So you can pay on your offer, or you can wait until they accept it or deny it. But the collection process is on hold.

Investopedia: What kind of taxpayers will generally be eligible to compromise?

Harris: I have a widow who did not work. He (filed) jointly with her husband, and she left her with a lot of debt. He is not going to be able to pay $ 200,000 to IRS. She is living on social security, and does not have the ability to pay.

I have a customer who is not able to work, but he has a house that is like $ 300,000, and so IRS rejected the proposal and said, ‘Okay, there is equity in her house.’ He can get a loan, but my protection that he cannot work, so how is he paying the loan?

These are the average people who come only in different situations. I am going to say that my average customer is about 35 to 40 years old. They may have gone through any kind of financial situation, such as we all did with covid, or divorce, or they were kept away from a high-dollar job, and a career was changed. He may have died, and now he has been abandoned with some marital debt from IRS.

Investopedia: What if a taxpayer is not approved for agreement?

Harris: We will go for appeal. Good thing about the hearing of the appeal (is) you are usually working with a person, and you can explain the situation a little better. You are able to have more interactions in the appeals, and if it does not work in the appeal, they will usually come together … another program that you probably will qualify for it, but sometimes it is better than a proposal in the agreement.

A proposal in the agreement is not the only tool. So if no one is eligible, there are other IRS options that can help the taxpayer.