There has been a lot of hype over settling your tax debt with the IRS for pennies on the dollar. However, from my years of experience, settling your tax debt with the IRS is much more complicated and more difficult than explained in many of these ads from these so called magic firms which claim to get rid of your taxes for you with very little effort.
What these ads don't tell you is that you need to usually supply the IRS with at least two-three months of receipts for all your expenses. Furthermore, the IRS has published national standards for expenses. So depending upon the size of your family, your $2,000 monthly mortgage will far exceed the $1,200 amount the IRS will allow for your housing costs. Know that the IRS will tell you to move if it will free up $800 per month. They don't care where you live, just getting their tax money.
With an offer in compromise, at a minimum, the IRS is looking for as much disposable income as possible over a sixty month period plus the equity in your assets. This can amount to a sizeable amount of money in exchange for the IRS wiping off the balance of your tax debt.
Furthermore, if your offer is approved, you have to pay your tax bill on time for the next five years or else the amount written off by the IRS becomes due again. So be very careful before you spend thousands to hire a firm to wipe out your old tax debt. Make sure they explain everything to you in advance and if it sounds to good to be true, it usually is.
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