IRS Partial Payment Installment Agreements vs. IRS Offers In Compromise

If you owe the IRS money you can pay them in different ways, based on what is determined you owe and what your ability to pay is. The thing to keep in mind is that there are very specific differences between payment methods and those differences should be considered by you and your attorney.

Many people like the idea of an IRS offer in compromise (OIC) in that it feels like a complete and quick solution to a problem and costs less. However, it needs to be pointed out that in the case of an offer in compromise, the IRS will expect you to use all your available assets, including any equity in your home, or equity in other assets, to pay off the amount you owe. This could have negative long term consequences.

Remember that on any debt you owe the IRS, there is generally a 10 year statute of limitations which means that when 10 years is up, they give up and walk away in most cases. There are exceptions to this rule if the IRS feels it still has a good chance of collecting, but it’s a good, general guideline. This comes into play in a partial payment installment agreement (PPIA). Let’s say you owe $80,000 in taxes, interest, and penalties. You work out an installment agreement that would have you sending in $250 per month for the 10 year period. That works out to $30,000 over the period, far less than the full $80,000 plus accrued interest. If the IRS accepts this installment agreement, you would not necessarily have to use the equity in your house or other assets.

So while you can’t apply for a partial payment installment agreement, the IRS can grant one if you’ve made a good faith effort to pay the amount owed and shown them what you can do financially. Keep in mind that they will evaluate your situation every two years and if your finances change during that time, they can amend or rescind the partial payment installment agreement. In the case of an OIC, once approved, they won’t change the deal as long as you live up to your end.

Another key difference is that once an offer in compromise is agreed upon, the lien against you is removed once the offer amount is paid. In the partial payment installment agreement, the lien remains in effect for the duration of the repayment period, and this could have a negative effect on your finances in terms of credit rating, or the appearance of financial problems.

Ultimately, what route you take will be determined by the IRS, with input from you and your attorney. Because this process is tricky, somewhat complex, it’s critical to retain good counsel and listen to the advice given.

By: Timothy S. Hart