IRS Installment Agreement vs Offer in Compromise: Which Is Right for You?

Owing debt to the Internal Revenue Service (IRS) can be incredibly nerve-racking, especially if the liability is more than you can reasonably afford. Many taxpayers look into the options for debt resolution, but are unsure what is right for them. Understanding an IRS installment agreement vs. an offer in compromise can help you determine which one may apply to your financial situation and which offers the most benefits.

Both tools can help you address a tax debt you can’t afford, but they apply in very different circumstances and have unique requirements. Installment agreements, which are payment plans, tend to be much easier to get more quickly, while an offer in compromise (OIC) is harder to get but can actually reduce your tax debt.

What Is an IRS Installment Agreement?

An IRS installment agreement is one of the payment plans the IRS offers for taxpayers, although there may be different payment plan options for businesses and individuals. Installment agreements enable you to repay your tax debt over a period of months, rather than all at once.

The number of months you repay for depends on the amount of tax debt and the amount you can pay in the agreement. You still owe the full amount, but are given more time to repay it, and most collection actions pause when you set up an agreement. You can apply for an installment agreement using Form 9465.

What Is an IRS Offer in Compromise?

An IRS offer in compromise lets you settle your debt with the IRS for a lower amount than you owe. This lower amount can be paid in a lump sum or over a period of months. An OIC application form is Form 656 and either Form 433-A or 433-B.

An OIC is an incredibly useful tool for lowering your tax liability, but not all taxpayers can qualify. To potentially have your offer accepted, one of the following must be true:

1. There is a genuine doubt that you owe the tax debt.
2. There is a genuine doubt that the IRS can collect the full amount, because doing so would put you in financial hardship.
3. The IRS considers an accepted OIC effective tax administration because it is unlikely that the agency will be able to collect the full tax debt from you.

There are also many other requirements to be eligible to apply for an OIC, like not being in an open bankruptcy case and paying the first portion of your offer.

Which Tax Debt Resolution Is Right for You?

Whether an installment agreement or an OIC is right for you to resolve your tax debt depends on many aspects of your personal and financial situation. You should consider these differences between the two options:

1. Qualifications: One of the biggest factors that influences which option is right for you is which one you qualify for. There are very strict financial and other qualifications that must be met for an OIC, while installment agreements have fewer requirements.
2. Acceptance: It is much easier to get an installment agreement compared to an OIC. In fiscal year 2024, the IRS established 3.4 million new installment agreements with taxpayers. The same year, the agency accepted 7,199 OICs.
3. Time: It is much easier to establish an installment agreement compared to an OIC. Installment agreements may not even need approval by the IRS directly, and you can set up the agreement online if your balance is under a certain amount. OICs require approval, and this review process can be lengthy.
4. Cost: There are usually more upfront costs for an OIC compared to an installment agreement. However, an OIC can also mean paying much less overtime because of the tax debt reduction. An installment agreement also does not prevent fees and interest from accruing, which you then eventually have to pay.

FAQs About IRS Installment Agreement vs Offer in Compromise

What Is the Difference Between an Offer in Compromise and an Installment Agreement?

The main difference between an offer in compromise and an installment agreement is that an OIC settles your full tax debt for less, while an installment agreement requires you to pay back the full tax debt over a longer period of time. It is also much easier for most people to get a payment plan with the IRS, while an OIC is much harder and has many qualifications. You have to try other debt settlement options before an OIC.

Does the IRS Usually Accept an Offer in Compromise?

The IRS accepts very few offers in compromise. In fiscal year 2024, the agency received 33,591 OICs from taxpayers and accepted 7,199 of them. This is an acceptance rate of 21%. You have to prove certain things to apply for an OIC, such as doubt as to liability, and then you must meet other qualifications to have the OIC approved. You also have to provide a reasonable settlement offer.

What Is the Downside of an Offer in Compromise?

One of the downsides of an offer in compromise is that they are hard to get, and if you do get one, you must pay the amount offered. If you offer too much to the IRS, you will be required to pay that over several months, and it could create a financial hardship. If you fail to pay what you owe, the OIC will be ineffective, and you will be back to dealing with IRS collection actions for your debt.

Why Should You Work With an IRS Installment Agreement Attorney?

You should work with an IRS installment agreement attorney in Jacksonville, FL, if you have a tax debt that you can’t pay all at once, and you need to negotiate a reasonable payment with the IRS. While there are some simple payment plans, others require more negotiation with the agency and are easier to manage with an attorney. An installment agreement attorney can also assess if other debt settlement options are more useful to you.

Hire an IRS Installment Agreement Lawyer at TaxSmith, LLC

There are many considerations to account for when determining if an OIC or an installment agreement is right for you. Working with an experienced tax debt settlement attorney can help you assess your situation and determine what protects your financial future effectively. At TaxSmith, LLC, we have years of tax law experience and can help you negotiate with the IRS effectively. Contact us today.