Can I Settle Back Taxes with an Offer In Compromise or an IRS Installment Agreement?

Many Americans have back taxes and interest that they would like to resolve but are scared that they may not be able to pay the large amount owed. We see this all the time at Tax Resolution Services. People seemed to be surprised that the IRS offers options for settling back taxes. At Tax Resolution Services, each tax issue is solved on a case by case basis and if you have back taxes to settle, you may be eligible for one of the IRS tax settlement programs below.

Question: I owe a significant amount in back taxes and interest. What’s the best option for me — an Offer in Compromise or an Installment Agreement?

Answer: I wish it were as simple as saying one option is better than the other. But that’s impossible to say. The truth is, the Offer in Compromise and Installment Agreement are both excellent programs suited for specific and different circumstances.

The first thing you should do is determine your current circumstances. The best way to do this is by consulting with a qualified tax professional who will analyze your previous returns and your current financial situation. From this information, you and your tax professional can begin to assess whether the Offer in Compromise or the Installment Agreement would be your better option.

Let me briefly explain the differences between the two programs.

The Offer in Compromise is geared to taxpayers who owe a significant amount of money to the IRS but who, for whatever reason, are unable to pay this debt, even over time. This may be due to a failed business, medical expenses, legal judgments, personal misfortune, etc. The point is, for taxpayers who cannot pay their debt, the IRS allows the taxpayer to make an offer that would settle that debt once and for all. Oftentimes, this offer amounts to a substantial discount. You and your qualified tax professional meet with the IRS and then present your offer. It’s that simple.

By contrast, the Installment Agreement (also known as an IRS Payment Plan) is intended for taxpayers with debt who are unable to pay the debt off in one lump sum but who have the resources to pay the debt down over time. Under the program, the taxpayer makes monthly payments that will over time eliminate the tax debt. Think of this like a car payment — paying a small amount regularly to pay off a large amount in time.

If you’re curious about IRS solutions, or have questions about settling back taxes, call 1-866-IRS-PROBLEMS (1-866-477-7762) or fill out the free tax consultation form on the Tax Resolution Services website. At Tax Resolution Services, we are IRS problem solvers!

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