IRS Law Blog

An IRS offer in compromise (OIC) is not all it’s cracked up to be. There are major drawbacks to an OIC, as the IRS’ strict guidelines may not work in our favor. 

It’s natural to want to remove the clouds that come with owing money to the IRS. With an offer in compromise, it’s important to consider the downsides and carefully strategize what are often better alternatives. 

Here are the most notable drawbacks you face with an OIC:

• It can take the IRS 12-18 months to investigate an OIC – it is not a quick fix. 
• Even after waiting all those months, the IRS still rejects over 60% of the offers they investigate. 
• The low success rate of OICs is due to the IRS’ complex rules, formulas, and calculations that record your assets, debts, earnings, aliving expenses. 
• The IRS must stop all collection enforcement action against us when an offer is filed. This pauses the time the IRS has left to collect from you. When you first file a tax return, the IRS gets 10 years to collect; after those ten years, the IRS will clear your balance to zero. However, those 12-18 months of the IRS investigating your OIC are added onto your collection period.

We can avoid these drawbacks and still reach resolution. Settling with the IRS is not a one-way street – with proper planning and careful consideration, we can avoid waiting 12-18 months only to have our case rejected. There are better ways – here are three examples of smart alternatives to an OIC:

One alternative to an offer in compromise is entering into a Partial Pay Installment Agreement (known by the IRS as a “PPIA”). The best part of a Partial Pay Installment Agreement – and what separates it from an OIC – is that the clock on your collection expiration continues to tick.

In this case, the IRS allows installment agreements that pay them back “partially” – not in full. So, let’s think about this in an example. You owe $50,000 and the IRS agrees to a Partial Pay Installment Agreement in which you can budget to pay $100 monthly. At the same time, we research and find that the IRS has two years left of the collection period. As a result, you will pay $100 each of the next 24 months (two years), and then your installment agreement ends and your remaining unpaid IRS debt is forgiven. You have settled by paying $2,400 of the $50,000 owed.

No waiting, no tolling, no rejections. 

A second alternative to an IRS offer in compromise is entering into Currently Not Collectible status, in which the IRS agrees repayment would create a financial hardship for you. 

Referring back to our prior example, think of owing $50,000, but rather than the IRS agreeing to a PPIA and paying $100 monthly, the IRS would determine you cannot pay them anything. Like a PPIA, Currently Not Collectible status pairs well with your expiration timeframe as no tolling is involved. Your uncollectible status can last for years, allowing you to be stress-free of payments while also running out the clock on the IRS’ 10 years to collect. 

A third alternative to an offer in compromise might seem counterintuitive, but it may be best for you: staying calm and staying low. 

The IRS doesn’t tell you this, but they cannot surprise you with a levy. Laws require that the IRS alert you first, and give you the right to prevent the levy. The letter the IRS must send is called a Final Notice of Intent to Levy with Rights to a Collection Due Process Hearing.

If we determine that the IRS hasn’t sent you the Final Notice of Intent to Levy, you are not at risk of the IRS taking your bank accounts, wages, and property. As a result, we could stay calm, stay low, not wake the IRS up, and wait out your collection period. When the collection ends, we then secure records from the IRS showing your debt has been cleared.  

The drawbacks of an offer in compromise are clear: the process can be lengthy, and, during the waiting, your collection expiration date gets farther away. Fortunately, we have other options to consider that will lead to the same end goal we all desire: settling your tax debt. Each of these smart alternatives – Partial Pay Installment Agreement, Currently Not Collectible, Staying Low – utilize the collection expiration period to our advantage. You are not stuck with the waiting and complexities that come with an offer in compromise; instead, with careful strategizing and planning, we can find a simpler solution and best path for your tax resolution.