Every year around tax time, we get questions about IRS tax settlement programs, specifically, who can qualify to use them to settle their tax debt. Here is one such example:
Question: Do I have the choice between the Offer in Compromise and the Installment Agreement when working with the IRS to settle my tax debt? And which one is better?
Answer: Great questions!
The short answer is that the Offer in Compromise Program and Installment Agreement are intended for taxpayers in different positions based on their specific financial and tax situations. The following is an explanation of each program and how they apply to different taxpayer situations:
Offer in Compromise
The IRS developed the Offer in Compromise after realizing that knocking on taxpayers’ doors isn’t always the most effective way of collecting outstanding tax debt. The IRS discovered that in some cases, no matter how many times they knocked, they were never able to collect because the taxpayer could not pay it.
The Offer in Compromise Program (OIC) was created to help in situations where the taxpayer is unable to pay the IRS tax debt, even over time. In the OIC Program, the IRS agrees to accept a one-time tax settlement offer that will eliminate the tax debt. To the IRS, collecting something is better than nothing. For the indebted taxpayers, the Offer in Compromise can provide some much needed tax relief by reducing the tax debt by a significant amount! However, to qualify for the Offer in Compromise, you have to prove to the IRS that you cannot pay off the debt, even over time. If you think you may be a good candidate, your qualified tax professional can assess your situation and help you make this determination.
Installment Agreement
In cases where a taxpayer can’t settle their entire IRS debt immediately, but has the means to pay it off over time, the Installment Agreement is a viable option. This tax settlement allows a taxpayer to make small, manageable monthly payments that eliminate the tax debt over time (think car payment). Again, your qualified tax professional can evaluate your financial situation and determine if you qualify for this program.
Additional information on IRS payment plans can be found on the IRS Payment Plan FAQ page on the Tax Resolution Services website.
