Which Is Better to Resolve Your Debt: A Payment Plan or an OIC?

An Offer in Compromise (OIC) is a way to resolve your tax debt for less than the total debt amount. It’s available to those who lack the financial resources to pay the debt. The IRS expects taxpayers to consider all other payment options before turning to an OIC.

Payment plans, in comparison, allow people to pay back their entire tax debt over a period of months or years. Like OICs, payment plans also have restrictions on who can apply.

OIC Limitations

It’s easy to see the appeal of an OIC. It allows people to pay off their tax debt for less than the total amount they owe. Not everyone qualifies for OIC, and the IRS takes the long view on tax debt collection: If you can pay over the course of time, they’re unlikely to approve your OIC application.

The IRS also limits who can apply for OIC. Even if you’d otherwise qualify, the IRS won’t approve any OIC applications if you:

  • Have an open bankruptcy proceeding
  • Haven’t filed all required tax forms
  • For business owners, if they haven’t made tax deposits for the current and previous two quarters

Individuals must either be unable to pay back the total amount or be able to show that paying back the full amount would create a financial hardship. In addition, the IRS considers all assets, not just cash assets, when determining if you can pay your full tax debt.

Payment Plans

If you don’t qualify for OIC, setting up a payment plan is another option. Perhaps the two biggest downsides of payment plans are that you’ll likely have to pay the full amount, and interest and penalties may continue to accrue as you pay.

Similar to OIC, payment plans also have limitations. These include:

  • Your total tax liability, including fees and penalties, must be less than $50,000
  • You must have filed all required tax returns

Resolving Your Tax Debt

When you have tax debt, figuring out how to pay that debt and your available options can be confusing. The Highland Tax Group can walk you through your options and ensure you’ve completed the requirements to avoid being denied relief on a technicality. Contact us to learn how we can help.