When taxpayers have an outstanding tax debt to the Internal Revenue Service (IRS), an offer in compromise (OIC) is often the first thought. After all, if your request for an OIC is accepted, you can settle your debt for less than you actually owe and get a fresh start on your taxes again.
However, OICs aren’t always easy to obtain, and they’re not always the right fit for your situation. Here are some potential alternatives to explore:
1. An installment agreement
If you don’t qualify for an OIC, an installment agreement might be an option (so long as you don’t have an open bankruptcy or any unfiled tax returns) to eventually repay your tax debt over time.
Depending on how much you owe, the type of taxes involved and your ability to repay, you can use an installment agreement to get your taxes back on track within three to six years.
2. Partial pay installment agreements
Partial pay installment agreements (PPIAs) often benefit taxpayers who can pay something toward their tax debt but still need to lower their monthly payments because of their financial situation.
Generally speaking, the IRS will look at your financials and determine if you meet their criteria for acceptance. If you do, they’ll agree to an affordable payment each month – which you’re required to pay until the remainder of the IRS’s 10-year collection period runs out. In practice, that often allows you to pay far less than you actually owe.
3. Currently not collectible status
When you ask to be placed in “currently not collectible” (CNC) status, you are essentially telling the IRS that you can’t afford to pay the tax bill and also afford your basic living expenses at the same time due to financial hardship.
If your request for CNC status is approved, the IRS won’t try to collect from you, which means your assets and income are safe from levies or garnishment. Although the IRS will conduct an annual review to determine if your financial situation has changed, this can be a viable option for people who are experiencing significant economic distress.
While offers in compromise are useful for a lot of taxpayers, they aren’t your only options. Experienced legal guidance can help you look at your situation and determine what’s right for your needs.