5 Smart Ways To Handle an Offer in Compromise Payment

An Offer in Compromise (OIC) is an IRS program allowing taxpayers to settle their tax debt for less than the full amount owed. This solution provides relief for those struggling with tax burdens, but understanding the payment options is crucial for success.

What is an Offer in Compromise?

An Offer in Compromise represents an agreement between a taxpayer and the Internal Revenue Service that settles a tax debt for less than the full amount owed. This program exists for taxpayers experiencing genuine financial hardship, making it impossible to pay their full tax liability.

The IRS evaluates your ability to pay based on your income, expenses, asset equity, and future earning potential. They consider your unique financial situation to determine if you qualify. Not everyone is eligible—you must demonstrate that paying your full tax debt would create significant financial hardship or that there's doubt regarding the amount owed.

How the OIC Payment Process Works

When submitting an Offer in Compromise, you have two primary payment options. The first is a lump sum cash offer, which requires an initial payment of 20% of the total offer amount with your application. If approved, you must pay the remaining balance in five or fewer payments.

The second option is a periodic payment offer, requiring you to submit the first proposed monthly installment with your application. You must continue making these monthly payments while the IRS reviews your offer—a process that can take several months. If approved, you'll complete the remaining payments according to your established agreement.

Both options require a non-refundable application fee of $205, though this may be waived for low-income taxpayers who meet specific criteria. The application process involves completing Form 656, Offer in Compromise, and Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, or Form 433-B for businesses.

OIC Service Provider Comparison

Several tax resolution companies specialize in Offer in Compromise assistance. Each offers different services and success rates for taxpayers seeking help with tax debt.

Provider	Services	Initial Consultation
Optimum Tax Law	Full OIC preparation, IRS negotiation, case management	Free consultation
Tax Defense Network	Personalized tax relief plans, OIC assistance	Free case evaluation
Community Tax	Tax resolution, OIC preparation, investigation	Free tax analysis
Tax Resolution Institute	OIC negotiation, audit defense, tax planning	Free consultation

When selecting a provider, consider their experience with cases similar to yours, their success rate with OIC applications, and their fee structure. Most reputable firms offer an initial consultation to evaluate your situation and determine if an OIC is appropriate for your circumstances.

Benefits and Drawbacks of OIC Payments

An Offer in Compromise provides several significant advantages for qualifying taxpayers. The most obvious benefit is settling your tax debt for less than you owe. This can provide substantial financial relief and a fresh start. Additionally, once you complete your OIC payment plan, the IRS removes tax liens, stopping collection activities like wage garnishments or bank levies.

However, the OIC program has notable drawbacks. The approval rate is relatively low—historically around 30-40%. The application process is detailed and time-consuming, requiring extensive financial documentation. While your offer is under review, the IRS extends the collection statute of limitations, giving them more time to collect if your offer is rejected.

Using professional assistance from firms like TaxCure or National Tax Relief can increase your chances of approval but adds to the overall cost. These services typically charge between $2,000-$5,000 depending on the complexity of your case.

Making Your OIC Payment Plan Successful

Securing approval for your Offer in Compromise is just the beginning—successfully completing your payment plan is essential. Set up automatic payments to ensure you never miss a deadline, as defaulting on your agreement can cause the IRS to terminate your offer and reinstate the original debt plus penalties and interest.

Maintain tax compliance during and after your OIC process. This means filing all required tax returns on time and paying any current tax obligations. The IRS requires five years of compliance after an accepted offer—failure to meet this condition can void your agreement.

Consider working with tax professionals from firms like Tax Relief Center who can help monitor your payment progress and ensure you stay compliant with all terms. Many taxpayers find that the guidance from experienced professionals significantly increases their chances of successfully completing the program without complications.

Conclusion

An Offer in Compromise can be a powerful tool for taxpayers overwhelmed by tax debt, but success depends on understanding payment options and following through with your obligations. Whether you choose a lump sum or periodic payment plan, ensure you can fulfill the commitment before applying. While the process may seem complex, the potential financial relief makes it worth considering for those genuinely unable to pay their full tax liability. Remember that professional guidance from reputable tax resolution companies can significantly improve your chances of approval and successful completion of the program.

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This content was written by AI and reviewed by a human for quality and compliance.