Owe money to the IRS? You may have options
Are you up to your ears in tax debt or at odds with the IRS over your tax liability? You may have more payment options than you think.
Offer in compromise (OIC)
Essentially, an OIC is an agreement with the IRS to settle your tax liability for less than the full amount owed. Usually, the IRS won't accept an OIC unless the amount you offer is equal to or greater than the "reasonable collection potential" (RCP) from assets you own - including real estate, autos, bank accounts and future earnings.
The IRS may accept an OIC for one of three reasons:
- There is doubt as to the tax liability
- There is doubt that the full amount owed can be collected
- The compromise is based on effective tax administration (In other words, requiring full payment would create an economic hardship or otherwise be inequitable)
The application fee for an OIC is generally $186, although there are certain exceptions.
Installment agreement
You may end up deciding to apply for an installment agreement instead if you can't pay the full amount of tax you owe within the OIC payment parameters. An installment agreement allows you to make a series of monthly payments over time. The IRS offers various options for making these payments, including:
- Direct debit from your bank account
- Payroll deduction from your employer
- Payment by the Electronic Federal Tax Payment System (EFTPS)
- Payment by credit card
- Payment via check or money order
- Payment with cash at a retail partner
The user fee for installment agreements varies, depending on the type of payment, but the maximum fee is $225. Interest and possibly penalties will also be added to the amount owed.
Which option is better? It depends on your personal situation. Call to discuss what option is right for you.
