Strategies to reduce IRS tax debt

If you are struggling to pay your federal tax debt, you may benefit from an IRS offer in compromise (OIC). 

The program enables some of the most financially distressed taxpayers to clear up their tax problems for less than the full amount owed.

Fortunately, there are many strategies that can save thousands of dollars when filing for an OIC. However, it's important to take action as early as possible to avoid losing valuable strategy options.

The OIC calculation is based on two components which are the equity and income components. Too much equity or too much income after paying your living expenses can prevent you from saving as much money as possible. By using strategies to reduce your equity or income, you may be able to save a substantial amount of money.

The OIC rules allow you to have a car payment. Many of my clients are shocked when I tell them the IRS will allow them to buy a car rather than give the money to the IRS. Additionally, buying an older model car or one with higher mileage enables you to deduct a larger amount for vehicle operating costs. However, there are limits to the amount of car payment the IRS will allow, and the amount increases periodically.

The IRS allows you to deduct your health insurance as a living expense.  Getting a more expensive health insurance plan (that provides lower deductibles and better benefits) can provide you with much better insurance while also reducing the amount of your OIC.

If you own a business and have equity, you can use the money from your equity to purchase business assets rather than give the money to the IRS.  This will reduce your equity which will reduce the amount of the OIC while enabling you to buy assets for the business.  If your income is too high, you should consider buying assets by getting a loan. The loan payment will decrease the amount of money you have available at the end of the month to pay the IRS, which reduces your OIC. Leasing assets will also reduce your offer amount since the expense will reduce your profit.

The strategies aren't required to be permanent. After the offer is accepted, you can go back to your original health insurance, sell your vehicle, and buy a less expensive one, sell your business assets, or end your asset lease.

These are just a few of the many strategies which can be used to reduce the amount of an offer in compromise. However, learning how to correctly complete a successful offer in compromise and taking advantage of all the strategy options to reduce an offer as much as possible can be very challenging to do yourself.

If you aren't able to reduce the amount of your offer to a minimal amount, you may want to consider hiring a professional. They may be able to reduce your offer substantially, and the amount that you pay your professional can be used to reduce the amount of your offer in compromise.

Unfortunately, there are tax resolution companies that use unethical practices, and many have been shut down by the IRS. It's important to hire a trusted and qualified tax professional.

To further help the readers of my column, I am offering a free copy of my book Fight the IRS and Win, Secrets of an Enrolled Agent to anyone who contacts me.

David Zubler is a tax accountant and Enrolled Agent in East Tennessee, providing tax strategies and representing clients before the IRS and has over 25 years of tax experience. He is the author of five tax books and is the founder and president of Your Tax Care. The company provides business and tax education to the public at its website, David has appeared on national tv, and recordings of David’s daily tax tip radio program are also available. David can be reached at (865) 363-3019 or contacted by email at