Offer in Compromise Payment Options
If you are unable to pay your tax debt through an installment payment plan, and otherwise qualify for an Offer in Compromise, you can settle your tax debt for less than what you actually owe. However, there are several different payment options for an accepted Offer in Compromise that the IRS will allow you to do, and each has slightly different requirements and qualifications. The table below summarizes these items, and will help you determine the best Offer in Compromise option for your situation.
|
OIC Payment Option |
Terms 1, 2 |
$150 Application Fee Required? |
Collection Information Statement (Form 433 Financial Statemenet) Required? |
Calculating Your Offer Amount |
|---|---|---|---|---|
|
Lump Sum Cash |
Must pay 20% of the offered amount when Form 656 is submitted, with the balance to be paid in five or fewer installments from the notice of acceptance. |
Yes, unless Form 656-A is completed or Doubt as to Liability OIC is submitted. |
Yes, with the exception of Doubt as to Liability offers. |
80% of the value of all your assets + your entire monthly disposable income over either 48 months or the time remaining before the statute of limitations for collections expires, whichever is less. |
|
Short Term Periodic Payment |
Must include an initial payment with the offer and regular payments must continue while the offer is being investigated. Offer must be paid in full within 24 months from the date the IRS receives the offer. |
Yes, unless Form 656-A is completed or Doubt as to Liability OIC is submitted. |
Yes, with the exception of Doubt as to Liability offers. |
80% of the value of all your assets + your entire monthly disposable income over either 60 months or the time remaining before the statute of limitations for collections expires, whichever is less. |
|
Deferred Periodic Payment |
Must include initial offer payment and regular payments must continue while the offer is being investigated. Offer must be paid in full in 25 or more months but within the time remaining on the statutory period for collection. |
Yes, unless Form 656-A is completed or Doubt as to Liability OIC is submitted. |
Yes, with the exception of Doubt as to Liability offers. |
80% of the value of all your assets + your entire monthly disposable income over the number of months remaining before the statute of limitations for collections expires |
1 Taxpayers qualifying for a low income waiver and completing Form 656-A, Income Certification for Offer in Compromise Application Fee and Payment and taxpayers submitting Doubt as to Liability offers, are exempt from the required 20% payment on a Lump Sum Cash offer and all payments required during the investigation of a Short Term Periodic Payment or Deferred Periodic Payment offer.
2All required payments are not refundable.
For most taxpayers, the Deferred Periodic Payment Offer in Compromise usually turns out to be a worse deal than a regular installment agreement, since the payment plan on an installment agreement does not include the value of your assets.
If you have zero assets, and have no disposable income remaining after subtracting IRS allowable expenses (and not everything is allowable) from your income, then the Lump Sum Cash Offer is most likely your best bet. The challenge for most taxpayers in this situation, however, is coming up with the money to actually pay their Offer in Compromise within 5 months. Many of our clients borrow the money from friends and family members in order to pay off these settlements if they are accepted, since the settlement amount is often too good to let it go and not pay it off. In other words, if you are broke and don’t own anything, and get your Lump Sum Cash Offer accepted by the IRS, you’re probably going to saving such an incredible amount of money on your tax bill that it’s worth doing whatever it takes to secure the funds necessary to pay off the tax settlement.