Settle with irs. They say i owe 11k.?

Read the settlement agreement.

If the settlement was for your injury then the settlement is not taxable. A copy of the settlement agreement will pull the IRS' dogs off.

However if the settlement was to pull down the website then it's fully taxable. You may or may not be able to settle for less than the IRS amount.

There are 3 reasons that the IRS will consider a settlement of a tax debt:

1. Doubt as to Collectibility. In other words your current and projected financial situation is so dire that there's no way that you could pay the entire debt.

2. Doubt as to Liability. You have a reasonably convincing argument that you don't owe the tax in the first place.

3. Effective Tax Administration (ETA). This means that the taxpayer does not have any doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the IRS to consider an offer. To be eligible for compromise on this basis, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.

Most OICs are submitted for the first reason. However you may have an argument for an ETA OIC considering that had you not run afoul of the SOL on the claim in the first place that it would be a reasonable assumption that you would have received a settlement for the physical injury which would NOT have been taxable.

Given the amount of money involved it may be worth a consultation with a local CPA or EA who specializes in Offers in Compromise. Stay away from the firms that advertise "pennies on the dollar" settlements. Many of their advertising claims are shady if not outright dishonest and their fees are VERY high compared to what a local tax pro would likely charge.

The story doesn't matter.

You will owe tax on the settlement.

If your med expenses were a large enough % of your income the year they occurred you should have been able to claim a deduction. If they are from 2003-2004 I think it is too late to file an amended return.

You should check with a tax lawyer, initial consultation should be low priced or free, to see it there is any way you can show a portion of the settlement as reimbursement for the med expenses, in which case that amount would be subtracted from the $50K.

The IRS often sets the bill at the highest possible amount & makes you show that it is actually lower.

Dear PK: The IRS may settle, but you must submit an offer in compromise. Get some help on this one as you must list all assets, bank accounts, expenses and etc. Your situation does not matter to the IRS all they see are $$ and your ability to pay or not pay-very objective. Consult with a tax professional for an assessment of your situation and if an OIC would be in your best interest.

This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided. Click on my profile to read more. Errol Quinn Enrolled Agent Master Tax Advisor

The settlement is taxable but if you used it to pay medical expenses, they are deductible.

I was wondering much the same question