Tax Settlement: Offer in Compromise Vs. Installment Agreement

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Benefits of an offer in compromise over an Installment agreement

Your tax debt’s completion is probably the most significant advantage that an accepted offer in compromise offers. Once your proposal gets approved by the IRS and you pay the entirety, you do not have a responsibility for the tax liability anymore. This payoff means you will not have to keep up with the payments every month or a two-year review of your financial standing. To stay on good terms with the IRS, you must have both components when you file an installment agreement.

The status of any tax liens is also one financial consideration. Filing a lien withdrawal can get your OIC cleared in most cases if there is an IRS lien on your property. A lien withdrawal may not get approved if you have previous expired debts. Tax liens may give a strong reason to file an OIC instead of an installment agreement. And even if your offer gets rejected by the IRS, filing an installment agreement would still be possible. Lastly, it would be beneficial to you if your OIC gets accepted by the IRS since you will be paying lower than what you owe. Check out America's Best Bookkeepers

Drawbacks of an offer in compromise

The major drawback of an offer in compromise is that if your financial standing and circumstances are not eligible, they will not get accepted by the IRS. So many OIC’s get turned down by the IRS is that a lot of tax relief entities send them out when they have no chance of getting accepted.


Liquidating Assets

Another drawback of an OIC would be having to allow a large number of assets and money to fulfill your debt. It would be best if you liquated your assets by the IRS to reach the total you owe or the same amount as the quick-sale value of the items. Check out America's Best Bookkeepers


Tax Liens

A federal tax lien can be filed by the IRS against you while your offer in compromise is pending. However, this is not a problem if you have liens already. Although liens don’t file while the OIC is pending in most cases, it is still possible.


Benefits of an Installment agreement over an offer in compromise

The primary benefit that an installment agreement offers is that you do not have to liquidate your assets in most cases. Under a Partial Pay Installment Agreement, you may be deemed eligible to receive tremendously low monthly payments.

It also works in favor of taxpayers who either cannot make a reasonable OIC, or their offer getting rejected.

Even during complicated financial circumstances, getting an installment agreement approved is much easier than an offer in compromise, which means there is more chance of getting accepted, and the decision is quicker. You must keep track of every new tax year with an installment agreement and make suitable payments every month. Your agreement may get revoked in case of any discrepancies.

Drawbacks of an installment agreement Check out America's Best Bookkeepers

An installment agreement means that your financial standing can get reviewed by the IRS every two years. This review is one of the reasons why the IRS prefers it. Your monthly payments can increase if you gain any new assets or your income increases.

While keeping up with your taxes is not a disadvantage, having to make payments for a long time can be a hassle.

In many situations, an installment agreement gets accepted by the IRS over an offer in compromise.

The new tax debt is nowhere near the collection statute expiration date gives the IRS additional time to collect. They are hoping for your financial standing to get better so they can collect more as time progresses.

The existence of tax liens is another drawback of an installment agreement. The IRS won’t lift the liens like with an OIC. You may have to deal with liens affecting your ability to get loans on good credit during the terms of your Installment Agreement.


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