Thank you for bringing your queston to Google Answers.
Unfortunately, there is no chance that the IRS would only take what
your friend has in cash if she pays on her mortgage-- she owes them
$50k and they will not reduce the taxes except under very unusual
circumstances which she does not seem to meet the criteria for
(outlined below). Your friend needs a lawyer or CPA to represent her
interests in this matter and possibly negotiate for her, and she needs
to find one as soon as possible.
Spending the $50k will not help her reduce this debt in the least. The
IRS will require a detailed accounting of all her assets and the
equity she has in them and proceed from there. They may require that
she sell the house to pay them back if all her money is in it as
equity. This is unlikely, but it is likely that they will put a tax
lien on her house for the claim for when/if she sells it. If she
never plans on moving, it could be a good idea to pay down her
mortgage, but if she does plan on moving, the IRS will take the money
when she sells the house... so she'd probably be better off just
getting it over with and paying now.
Uncle Fed's Tax Board
"So You Owe the IRS Money!"
"The RO [Revenue Office] may require that any net equity in assets be
converted to cash and paid on the IRS debt."
"One of the first steps to negotiating a favorable installment
agreement is the completion of a Form 433A, Collection Information
Statement for Individuals or Form 433-B, Collection Information
Statement for Business. These forms provide the RO with the type,
location, and value of assets; nature and amount of liabilities; and
your monthly cash coming in and flowing out. Form 433A and 433B are
signed by you under penalties of perjury.
The RO then investigates the information on the financial statements
by securing information from credit bureaus, the court house, the
department of motor vehicles, and other state and federal agencies. He
uses this information to determine if all assets are listed and all
liabilities are valid and to determine if there are assets which can
be sold, levied, or seized."
"The RO may question the amount of such items as rent, utilities,
groceries and make a recommendation that you should reduce these items
in order to make a larger payment to the IRS. Other expenditures such
as contributions, cosmetics, clothing, dancing or gym lessons, college
tuition, and other "optional" expenditures may not be allowed by the
There are a few different ways the IRS allows for the remittance of the debt:
1. Installment plans.
This will not help your friend, I'm afraid. From the same Uncle Fed
website as above:
'So, you have little or no equity in any assets such as home, real
estate, stocks, bonds, retirement funds, or other investments? If yes,
making an offer in compromise to the IRS may be a viable alternative
for debt resolution. On the IRS side, it considers an offer to settle
a tax liability for less than its full amount valid if the offer is
for an amount equal to the net equity you have in your assets. Net
equity is the total value of your assets less liabilities owed. Value
in assets is the amount you would receive for the asset if sold at a
In order to settle for your friend's offer, her offer to the IRS would
have to be EQUAL to the amount she has in equity in her home or
anything else. So if she has $50k in home equity after paying in the
$50k, she would have to make an offer of the full $50k for that offer
to be accepted by the IRS. Her best option would probably be to try to
get an installment plan set up so that she can keep the $50k in the
bank and get the interest off it while paying the IRS, but I'm not
sure on the likelihood of the IRS even accepting this. A tax
professional will be able to help her.
"Help.. I've fallen behind & I CAN'T PAY!"
"The OIC [Offer in Compromise] will only be accepted if the IRS thinks
it is getting more
from the OIC than it could get otherwise. For example, if your Form 433A
(the financial statement you have to submit with an OIC) shows that you
have $10,000 in immediately collectible assets and your tax bill exceeds
$10,000, the IRS won't settle for less than $10,000. The newspaper
stories you read about in which people settle for 10 cents on the dollar
often involve tax shelters, divorced people, etc. and not situations
where people get fabulous deals from the IRS."
The IRS is usually only willing to negotiate with people who do not
have the money to pay and do not have the ability to pay. However,
there could be wiggle room in regards to the amount of interest she is
charged, and this is where a professional will come in handy. The
interest rate is fixed and unchanging, but it is charged on the debt
and the penalties, and it is possible to negotiate the penalties,
which would in turn change the interest rate. This could affect the
end debt significantly. Since she has the money, there is little else
she could do to get the debt down.
Here is a Google Groups thread dealing with this issue:
"Advice please - IRS Negotiations?"
IRS-- Offer in Compromise
irs debt not paying previous years
irs debt compromise
If you need any additional clarification before rating, let me know
and I'll be happy to assist you.