Frustrated old man in white. Taxes, debts and other problems.
Settling tax debt isn’t easy; you need somewhere to begin. Agencies explain how complicated the process is and recommend that you should not start without consulting a professional. Although, deciding between an agreement for installment or an offer in compromise isn’t as hard as it may seem. Taxpayers can usually decide what works best for them after learning the details of both processes. Each process has its own pros and cons.

Offer in Compromise

Advantages

One of the main reasons people choose Offer in Compromise as a settlement option is completion of their tax liability. Once the offer is accepted by the IRS and payment is made in full, the entire tax debt is paid. There is no hassle of keeping up with monthly installments.

If your tax debt is secured through the IRS with a lien on a property you own, the Offer in Compromise is able to clear that up. All you need to do is file a lien withdrawal. This may be a very strong reason to pursue an Offer In Compromise. However, the importance of this reason varies from individual to individual, depending on their financial situation.

Even if your Offer in Compromise is rejected, you can still pursue an installment agreement. In the case that the IRS accepts your Offer in Compromise, you would have to pay less than your total debt, which might seem attractive to some people.

Disadvantages

Rejection is the main reason why Offer in Compromise isn’t seen as a dependable option. Many times, the IRS rejects applications because of the financials of the applying individual. Several applications are turned down because a lot of tax relief agencies send applications even if they know they have zero chance of being accepted.

Liquidation of Assets

The IRS might expect you to liquidate your assets in order to come close to the amount that you owe. They can also file a federal tax lien against your property while the status of your Offer In Compromise is still pending. If you already have liens, it might not be a big issue. It also isn’t very common, but can be a possibility. 

Installment Agreement

Advantages

The benefits of Installment Agreements usually come in where the disadvantages of Offer in Compromise end. The first big advantage of an Installment Agreement is, usually, not having to liquidate your assets. Plus, the monthly installments in this plan can be extremely low. The total amount you end up paying can even be lower than what you owe currently, as debt that ages to more than ten years becomes uncollectible. You can check out the particular dates for the Collection Statute Expiration.

Another advantage of an Installment Agreement is the acceptance rate. It is much easier to get a Partial Pay Installment Agreement accepted than it is to get an accepted Offer in Compromise.

Disadvantages

In the Partial Pay Installment Agreement, the IRS gets the right to review your financial situation every 24 months. Acquisition of new assets and boosts in income can lead to the IRS increasing your monthly payments.

The second disadvantage of the Partial Pay Installment Agreement is the presence of tax liens. The IRS won’t lift those liens as they do in the Offer in Compromise. Moreover, the existence of liens can affect your ability to obtain loans.

Filing Process

The forms to file an Offer In Compromise and Partial Pay Installment Agreement are different, however the required information is pretty much the same. The IRS will require full disclosure of income, assets, and expenses in each of the methods for tax debt settlement. However, in the Offer in Compromise, there is only a one-time disclosure compared to the Partial Pay Installment Agreement, where disclosure is scheduled every two years.

Conclusion

The IRS prefers that people with tax debt apply for a Partial Pay Installment Agreement rather than an Offer in Compromise. The reason for this is the ability of the IRS to collect more of the tax debt because they expect the person to be in a better financial situation in the future. The recommended route is to consult a professional bookkeeper or CPA about your current financial status. Try to file for an Offer In Compromise if the professional recommends it. If you don’t file an Offer in Compromise or if it is rejected, you can file for a Partial Pay Installment Agreement.

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