How to Settle with the IRS for Pennies on the Dollar

Do you owe the IRS back taxes? Have you seen those late-night TV commercials offering to settle your tax debt for "pennies on the dollar" -- in exchange for a high fee? Here's how you can settle your own IRS tax debt for pennies on the dollar without having to pay a high-priced company.

Difficulty: Moderate

Instructions

Things You'll Need:

• Recent copies of any letters from the IRS
• A copy of your monthly household bills (electricity bill, phone bill, mortgage statement, etc.)
• A few IRS forms that you can download from the IRS website for free.

1. First, go to the IRS website at http://www.irs.gov and click on the "Forms and Publications" link in the upper left hand corner. Download Forms 656 and 433-A.

2. Start with Form 433-A. Use your monthly bills to complete the form. This might take you a few hours to organize all of the information, so block some time out for it.

3. Next complete Form 656. It looks like a long form, but it's mostly boilerplate. The information you have to input is minimal.

4. Mail Form 433-A, Form 656, and a "user fee" of $150 to the IRS settlement office. See Form 656 for the appropriate address, but there are only two offices. You mail it to NY if you live east of the Mississippi, and to Memphis if you live west of the Mississippi.

5. You should get a response from the IRS within 1 to 3 months, depending on the complexity of your case and their backlog. When it's all over, you could very well walk away from your IRS debt for Pennies on the Dollar!

Tips & Warnings

• During this process you are trying to prove to the IRS that you cannot afford to pay the entire debt back. You should prepare everything with this in mind.
• If the IRS rejects your settlement offer, you can always appeal the decision. HINT: Most cases are won on appeal.
• Be prepared to give the IRS a lot of repeat information and documentation. It's just part of the process.
• If you run into a stonewall, contact the Taxpayer Advocate Office. They are a government agency created to help you break the log jams with the IRS. Use IRS Form 911 to request assistance.
• This is not to be construed as legal or tax advice. Please consult your attorney or tax consultant as needed.
• The settlement process with the IRS is long. It usually takes 6 to 9 months.
• Not everyone qualifies for a settlement. Make sure you've exhausted all other resolution efforts with the IRS before offering a settlement.

Resources

• Internal Revenue Service

[taxattorney]

on 4/19/2009 Very good information about avoiding "pennies on the dollar" scams. But, if you own a business, you will also need to fill out form 433-B.

[FrazzledNanny]

on 2/3/2009 Thanks for the well written article. Lots of great tips. 5*

[healthymomof5]

on 1/21/2009 This is really good information to have! Great article!5*

[Psalmist4M]

on 1/21/2009 Very precise & detailed. Thanks for the well written article. 5*s

[mflinn]

on 1/21/2009 What an appropriate and well-written article!