Almost everyone struggling to pay past-due taxes asks, “Will the IRS settle my tax debt for less than the amount that I owe?“. The simple answer: Maybe.

The IRS offers various alternatives to immediate full-payment of your delinquent taxes.  Among them are the Offer in Compromise and an IRS payment plan (known as an Installment Agreement).  Both are powerful tools intended to help you permanently resolve your debt.

Failing to understand the difference, who qualifies, and why to choose one rather than the other can result in confusion and missed opportunities to negotiate an affordable settlement with the world’s most powerful collection agency.

Your first step should be to consult with a qualified tax professional–a CPA, a tax attorney or an Enrolled Agent.  They can tell you if you qualify for either and help you negotiate and pay off your tax debt for good.

Here’s the difference:

An Offer in Compromise provides anyone who owes the IRS more than they could ever afford to pay the opportunity to settle their debt for an amount less than the full amount.  A Payment Plan allows for the full payment of the tax debt over time in affordable monthly payments.

Let’s take a closer look at each.

Offer in Compromise:  Less Than Full Payment

The IRS has the authority and discretion to settle, or compromise, federal tax liabilities for less than the full amount due.

This applies to any taxpayer that is clearly incapable of paying off their tax debt in full.  To qualify for an OIC, all returns that are due must be filed.

In the past, most who applied had a poor chance of the IRS accepting an OIC.  Only about 1 in 5 were accepted.  Beginning in 2012, the IRS introduced their “Fresh Start Program” and began rolling out a series of initiatives for struggling taxpayers.  In 2015, the acceptance rate nearly doubled, with 2 in 5 OIC’s accepted.

The process takes about six to twelve months (often longer).  If your request is rejected, you can file an appeal.  An Offer in Compromise won’t appear on your credit report or affect your credit score.

IRS Payment Plan:  You Pay It All

If you can’t immediately pay your taxes in full but could potentially pay them back over time, you may qualify for an Installment Plan.  To be eligible, you must first file all returns that are due.

Your monthly payment will be determined by your ability to pay based on IRS guidelines and is largely discretionary–meaning the IRS Revenue Officers’ discretion, not yours.  An experienced CPA, tax attorney, or Enrolled Agent can negotiate the lowest possible monthly payment under the most favorable terms.  A Tax Resolution Specialist me also work with the IRS to get levies quickly released.

Installment payments are generally made in equal monthly payments, and must be made timely.

While the Payment Plan is in effect, any refund in a future year will be applied to your past due tax, so don’t be shocked when you don’t receive the full amount of the refund shown on your return.

Why You Need Help

Now that you know the difference, you may think you can go up against the IRS yourself.

That’s dangerous–it’s like taking a spoon to a gunfight.  You must have a thorough knowledge of tax law and IRS procedure to truly succeed.  Otherwise, you’re at the mercy of the IRS Revenue Officer.

Here’s how an expert in tax controversy can help:

• They can navigate the maze of laws, procedures and protocols, freeing you from the frustration and time involved with negotiating with the IRS.
• They can take over all communication with the IRS. You can stop worrying about that dreadful knock on the door or the endless phone calls. .  In 2015, 62% of taxpayer calls to the IRS went unanswered.  On-hold time averaged 30.5 minutes.
• They are uniquely qualified to negotiate a reasonable settlement and mediate on behalf of their clients; some have decades-long relationships with the IRS.

Regardless of which solution works best for you, cleaning the slate once and for all will give you peace of mind, and a fresh start.

If you need help to settle your tax controversy, please schedule a consultation in the right panel.

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If you can’t pay the the full amount of what you owe the IRS because you’re broke, you’re not alone. An estimated 1 in 10 Americans has some sort of tax problem. If you’re one of them, here are five things you need to know.

1. Waiting to file doesn’t help–it only makes your IRS problem worse
   

File your return on time, no matter what – even if you can’t pay.  If you have any other unfiled returns, file them as well.  The IRS won’t negotiate unless you’re filing is up-do-date.  Worse yet, the IRS has the power to prosecute people who don’t file and can ask the court to sentence you to jail.

2. Don’t go it alone

The IRS is the most powerful collection agency in the world.  You’re at a big disadvantage if you try to face the them alone.  You can partner with a CPA, tax attorney or enrolled agent experienced in handling IRS collection issues.  If  you have representation, you won’t even have to speak to the IRS.

3. You may not have to pay your entire IRS bill in full immediately

The IRS offers alternative payment options for taxpayers who can’t afford to pay their tax bill in full.  But they won’t consider any type of tax settlement or payment plan until you have filed all of your tax returns.

If you owe less than $10,000 in back taxes, you have a clean IRS record and all your tax returns are filed, you can call the IRS directly and they can arrange a payment plan to be paid in 36 monthly installments. It’s guaranteed.

If you owe $10,000 or more in back taxes, you will want to partner with a CPA, Enrolled Agent or an attorney to increase your chances of qualifying for an IRS payment plan, helping you negotiate an affordable payment agreement and remove any bank levies, tax liens or wage garnishments.

4. You may qualify to settle your tax debt for a fraction of what you owe

An Offer in Compromise (OIC) program, established by the U.S. Congress, helps taxpayers who have severe financial problems get a fresh start.  If you qualify, you may pay a less than full amount due.  The IRS approves only a fraction of OIC requests, however.

Taxpayers who try to go through this process by themselves, without proper expert representation, risk getting it rejected. They could end up owing the IRS more money than when they started the process, in addition to accruing penalties and interest.

5. The IRS may waive some penalties if you can show reasonable cause

The IRS may consider conditions such as a death in the family or health issues.  The longer you wait, the less likely you are to successfully show reasonable cause.

Those conditions, or any others you want the IRS to consider, will require supporting documentation, such as death certificates, police reports, divorce decrees, and insurance policies.

While you can always represent yourself before the IRS, most people find it frustrating, intimidating, and time-consuming.  Hiring a tax resolution expert to negotiate your tax debt on your behalf.  They’ll work on your behalf while you get on with your life–and you’ll likely find that the benefit far outweighs the cost.

If you need help because you can’t pay the IRS what you owe, read our Special Reports below.

Individuals: Fix My Tax Problems Now!
Business Owners: Learn How to End Your Payroll Tax Problems.