Offer-in-Compromise (OIC) and Installment Agreement (IA)

The Internal Revenue Service (IRS) and almost all state tax agencies consider Installment Agreements (IAs) and Offer-in-Compromise (OIC) as possible methods of resolving civil tax cases.

For most taxpayers, the Offer-in-Compromise (OIC) is typically thought of as the most beneficial method of resolving a tax case as the taxpayer is offering an amount less than the total amount they owe to satisfy their tax debt in full. Whereas when taxpayers think of installment agreements they typically think in terms of the payments satisfying their tax liabilities in full. However, both the IRS and most state tax agencies approve Installment Agreements (IAs) based upon the amount the taxpayers can afford to pay per specified criteria and agency guidelines and many installment agreements are approved at an amount that will not satisfy the liabilities in full over the life of the agreement. So which is the best method of resolution if the taxpayer meets criteria where either an OIC or an IA can be submitted as a proposed means of resolution? Most taxpayers and many tax professionals don’t fully explore each alternative to determine the best possible resolution.

A good example is a case I recently worked where my client owed approximately 40K to IRS. Based upon the 433-A(OIC) Collection Information Statement, he would have had to offer 15K in the form of a “lump sum” offer (paid in 5 months or less) and even more via a “payment plan” OIC (paid in 23 months or less). Paying 15K to compromise a 40K tax debt is still a great “deal”. However, the 15K was based upon a net monthly realizable income of slightly less than $100 per month plus his net equity in a vehicle and boat. Because the net equity in assets is not part of the installment agreement computation, this particular client was better off getting set up on an installment agreement at less than $100 per month. Over the remaining 8 years left on the collection statute, this client will wind up paying less than $9,600.00 (100 x 12 x 8). In addition, he was able to pay the monthly IA payment from his disposable net monthly income versus having to find a way to come up with $15,000.00.
This is but one example but illustrates why a knowledgeable tax professional who specializes in representing taxpayers before the IRS and state tax agencies should always explore every option available before recommending a specific proposed resolution to their client.

I specialize in resolving tax cases and explore every possible solution in every case I work. With thirty years experience working for the Internal Revenue Service, I can assure my clients that all possible resolutions will be explored, every option will be thoroughly discussed and my recommendation will best fit their needs for their specific tax situation. I encourage prospective clients to review my qualifications on the about page of my website .
If I can be of assistance, please complete the FREE CONSULTATION form on my website or call me at 760-468-3506. Michael Rude, Enrolled Agent.