Paying Off Tax Debt with the IRS Offer in Compromise or Installment Agreement Plan

Question: I owe for several years of back taxes. How do I know whether the Offer in Compromise or the Installment Agreement is right for me?

Answer: Great question. The truth is, you will need to consult a qualified tax professional to be certain which of these plans is appropriate for you. But I hope by explaining in detail what these plans offer, you’ll be better informed when you meet with your tax professional.

First, you should realize that the Offer in Compromise and the Installment Agreement were designed with two different types of taxpayers in mind. For the Offer in Compromise, the IRS had in mind consumers who owe a substantial amount to the IRS but who, for whatever reason, cannot afford to pay their tax debt, even over time. By contrast, the Installment Agreement is designed for taxpayers who owe back taxes but have the financial ability to pay that debt over a specified period of time.

If you owe money, but due to a business failure, job change, health bills or any number of financial roadblocks, you are unable to pay your tax debt, then the Offer in Compromise is likely for you. You and your qualified tax professional should review your previous returns to make sure you know exactly how much money you owe — this process often results in a lowering of your tax bill. Once you and your qualified tax professional have established a specific debt amount, you can go to the IRS and negotiate a final settlement amount, which often amounts to a significant discount. Why is the IRS willing to negotiate? Because the tax-collecting agency realizes that getting something from taxpayers in this situation is better than getting nothing at all.

Alternatively, with the Installment Agreement, you can negotiate a payment schedule that will allow you to pay off your debt through monthly installment payments, just as you might pay off a car loan.

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At Tax Resolution Services, we solve problems such as yours every day. We are IRS problem solvers. For a free, no-risk tax relief consultation, please call our office at (888) 699-7630.

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