An offer in compromise (OIC) is a useful tool for your clients who have outstanding tax debt owed to the IRS. However, OICs aren’t always the best fit, depending on the client and their particular circumstance. It can be their financial situation—sometimes the IRS rejects OICs due to the Form 433 financials provided by the OIC candidate. Or it can simply be that their OIC was auto-rejected due to missing returns or an open bankruptcy proceeding under their name. Here's a look at some alternatives to offer in compromise that you can provide to your clients when OIC isn’t the right fit for their tax debt.
Installment agreements are a great option for taxpayers who don’t qualify for OIC, but still need a manageable way to pay off their tax debt. Installment agreements allow taxpayers to simply pay a monthly balance toward their outstanding tax due to the IRS.
Streamlined: The majority of taxpayers with a balance due of less than $25,000 meet criteria for streamlined processing of their installment agreement request. However, expanded criteria has also allowed taxpayers with tax owed between $50,000 and $100,000 to enroll in the program. This agreement stretches the payment out over a series of months or years. Taxpayers seeking installment agreements exceeding $50,000 will still need to supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F).
Taxpayers that owe $50,000 or less will have 72 months to repay their debt, or they can waive the statute of limitations if it cuts their repayment short. Taxpayers who owe between $50,000 to $100,000 have 84 months to pay off the debt.
It is important to note that, similar to an OIC, there cannot be any missing returns or an open bankruptcy under the taxpayer’s name in order for them to qualify for an installment agreement.
Partial Pay: A partial pay installment agreement is a better option for taxpayers who want to lower their monthly payment rather than extend the time to pay. The IRS will look to the taxpayer’s financial situation in order to determine their ability to pay. If the taxpayer’s financial situation does not allow them to pay the full tax debt, then the IRS will likely accept them into the program.
If the taxpayer’s financial situation does not change, then they will continue to pay reduced monthly payments until the expiration of the statute (generally for 10 years). After the statute expires, the IRS can no longer collect on the debt and the taxpayer will be free of their monthly tax payments. If the taxpayer does qualify, they will be subject to a thorough financial review every two years.
If an individual or business taxpayer simply needs additional time to pay their tax debt, a 120-day extension to pay in full can be granted by the IRS. However, if the taxpayer’s account is already being handled by IRS Collections then the taxpayer can only be granted a 60-day extension.
Currently Not Collectible Status
CNC status is most often awarded to taxpayers who currently owe back taxes to the IRS and cannot make payments toward that tax debt. CNC status can also be awarded to a taxpayer that “cannot be located” or a taxpayer who has died with no collection potential from the decedent or estate. There are a variety of other reasons, but the most common is the situation where a taxpayer cannot afford the payments.
Once CNC status is given to a taxpayer, all collection activity on their account will halt until further notice. Levies placed on the taxpayer’s assets or garnishment placed on the taxpayer’s wages will also be released once CNC status is given to the taxpayer. The taxpayer must demonstrate significant financial hardship in order to qualify for CNC status with the IRS. This “actual hardship” can only be determined by a Revenue Officer.
Taxpayers often feel like they have no other options once their offer in compromise is rejected. However, simply not qualifying for one tax resolution option is not the end of the road. There are various programs provided by the IRS that can help ease the burden of outstanding tax debt for your clients.
Interested in learning more about alternatives to offer in compromise? Check out Partial Payment Installment Agreement Vs. Offer in Compromise: Which is Better?