Using Home Equity to Fund an IRS Settlement
An accepted offer in compromise usually requires money the taxpayer does not have, which is the central irony of the programme. A lump-sum offer must be paid within a short window of acceptance, and the ability to produce that sum is frequently what determines whether a settlement completes at all.
Why homeowners use equity for this
- Lump-sum offers must be paid within a defined period after acceptance.
- A settled balance stops penalties and interest from accruing further.
- The IRS assesses reasonable collection potential, which includes home equity — take advice on sequencing.
How an equity agreement differs from a loan
A home equity agreement is not a loan. There is no interest rate and no monthly payment. You receive a lump sum today, and in exchange the investor receives a share of your home’s value when the agreement ends — usually when you sell, refinance, or reach the end of the term.
That structure is what makes it suit fund an irs settlement: the money arrives when it is needed, and nothing is added to your monthly outgoings in the period before it starts paying off. It also means the agreement has to be settled in full at the end, and that the share you give up grows if your home does. Both facts deserve equal weight before you sign anything.
Who else is usually involved
Decisions like this are rarely made alone. Tax resolution firms and tax attorneys are typically part of the conversation — resolution fees, contingent on the settlement actually funding. If you are already working with someone, we can work alongside them.
Questions people ask
How does an offer in compromise work?
You propose to settle for less than the full balance on the basis that the IRS is unlikely to collect more. They assess your reasonable collection potential from income and assets. If accepted, you pay under either a lump-sum or periodic-payment structure and must stay compliant for five years.
Does my home equity count against my offer?
Yes — the IRS includes equity in assets when calculating reasonable collection potential, which is why the sequence of steps matters and why this needs a professional. Releasing equity before an offer is assessed can change the calculation in ways that work against you.
Are tax resolution companies worth using?
A qualified CPA, enrolled agent, or tax attorney is worth a great deal. Firms advertising heavily with promises to settle for pennies are a different proposition — check credentials, ask precisely who will handle the case, and be sceptical of any guarantee made before your finances have been reviewed.
What if my offer is rejected?
You can appeal, and appeals succeed reasonably often. Alternatively an instalment agreement or currently-not-collectible status may apply. Rejection is not the end of the process, and a professional will know which route fits your circumstances.