When considering a settlement offer made in the form of an Offer in Compromise, the IRS will consider your unique set of facts and circumstances as to: (1) Ability to pay; (2) Income; (3) Expenses; and (4) Asset equity. I have no way to guess your likelihood of success without knowing the details of your particular situation. The answer for what pecentage of the tax debt to offer is fairly complicated, but the guidelines can be found in Internal Revenue Manual § 57(10)(10).1.
To submit an Offer in Compromise, you must submit two forms plus supporting documentation. First, you fill out a Collection Information Statement (Form 433-A, linked below). You will need to submit supporting documentation to substantiate your claimed income, expenses, etc. You must also file Form 656 (attached with instructions below) to formally request an Offer in Compromise. It will be assigned to an Offer Examiner who, over the course of several months, will determine whether to recommend your Offer for approval. You may also be required to pay a $150 filing fee and make an initial payment depending on your financial situation.
The process of preparing and negotiating an Offer in Compromise can be confusing and complicated, and it will definitely be time-consuming. Consider speaking with/hiring a licensed tax professional with experience in preparing Offers in Compromise.
Robert Hoffman is a tax attorney licensed in California. The information presented here is general in nature and is not intended as a substitute for legal advice. This posting does not create any attorney-client relationship with the author. For competent advice about your particular situation, consult your own attorney.
If you are unemployed then an Offer in Compromise may not be the best option for you. The IRS typically sees unemployment as a temporary situation. If you expect to return to gainful employment in the near future then the IRS will most likely not agree to settle for less than what you owe. The IRS accepts offers in situations where they believe they will never be able to get any more money out of the taxpayer. Of course, I don't know enough about your specific situation, so I can't say for sure that the Offer in Compromise is out of the question. You really need to consult with an experienced tax attorney to go over all your options. It is impossible to accurately assess you tax situation in a forum like this.
This response should not be considered legal advice. No attorney-client relationship is formed by this response, which reflects only the opinion of the author. The response should not be relied upon as legal advice. The response given is based upon the limited facts provided by the person asking the question and could change if additional facts were made available.