You’ve just opened a letter from the IRS — and your heart sinks. You owe back taxes, penalties, and interest that seem impossible to pay. The good news? You’re not out of options. The IRS offers several tax relief programs to help taxpayers resolve their debt without losing everything. Two of the most common are the Offer in Compromise (OIC) and the Installment Agreement (IA).
At their core, the difference is simple: an OIC is a settlement, while an IA is a payment plan. Choosing between them depends on your income, assets, and long-term financial situation. Let’s break down how each program works — and which might be best for you.
What is an Offer in Compromise (OIC)?
An Offer in Compromise is the IRS’s way of saying, “We’ll accept less than the full amount you owe — if you can prove you truly can’t afford more.” It’s one of the most powerful forms of tax relief available, but also one of the hardest to qualify for.
Purpose
The OIC program is designed for taxpayers facing serious financial hardship — those who genuinely can’t pay their full tax debt without sacrificing their basic living needs. The IRS will only accept an offer if it believes it’s the most it could reasonably collect, given your financial situation.
How It Works
When you apply, the IRS evaluates your Reasonable Collection Potential (RCP) — a calculation based on your income, living expenses, and the equity in your assets. Your offer must be at least equal to your RCP.
If your offer is accepted, you’ll pay that reduced amount either as a lump sum or through short-term installment payments.
While that sounds straightforward, the OIC process can be lengthy and complex. The IRS will examine your finances in detail, requesting full documentation of income, assets, and expenses. Applications typically require Form 433-A (OIC) and Form 656, and the review process can take several months.
Key Requirement
You must demonstrate that paying your tax debt in full would cause undue financial hardship. The IRS does not approve offers simply because repayment would be difficult — you must prove it’s impossible under your current financial conditions. Because of this strict standard, only a fraction of OIC applications are approved each year.
For taxpayers who qualify, however, the results can be life-changing — eliminating thousands of dollars in tax debt and providing a true financial fresh start.
What is an Installment Agreement (IA)?
If you can’t pay your full tax bill right now but have a reliable income, an Installment Agreement may be the most practical solution.
Purpose
An IA allows taxpayers to pay their entire tax debt over time, usually within 72 months (six years). It’s ideal for those who have consistent income but need time and flexibility to manage payments without triggering IRS collection actions.
How It Works
You and the IRS agree on a monthly payment amount that fits your budget. As long as you stay current on payments — and continue filing future tax returns on time — the IRS will pause aggressive collection measures, such as bank levies or wage garnishments.
There are several types of installment agreements, but most individuals qualify for a streamlined agreement if they owe $50,000 or less, including penalties and interest. Best of all, the process is typically simple and can often be set up online in a single session.
Under an IA, you’ll pay your full debt plus ongoing interest and penalties. While it doesn’t reduce what you owe, it provides stability and peace of mind, allowing you to manage your debt over time without fear of enforcement actions.
Key Requirement
To qualify, you must have filed all required tax returns and agree to continue doing so throughout the repayment period. Maintaining compliance is crucial — missing payments or failing to file future returns can cause the IRS to terminate your agreement and resume collection activities.
Which Option is Right for You?
Choosing between an Offer in Compromise and an Installment Agreement depends entirely on your financial reality and long-term goals. Each program offers valuable relief — but in very different ways.
Consider an Offer in Compromise if:
- You’re facing severe financial hardship, such as job loss, serious illness, or very limited income.
- You can demonstrate to the IRS that collecting the full amount would be impossible given your financial condition.
- You’re willing to go through a detailed application process in exchange for the chance to save a significant portion of your total tax debt.
For taxpayers who qualify, an OIC can provide a genuine fresh start, often wiping out years of accumulated tax debt for just pennies on the dollar.
Consider an Installment Agreement if:
- You have a steady income and can afford manageable monthly payments.
- You want to stop IRS collection actions quickly and regain control of your finances.
- You owe a reasonable amount that can realistically be paid off within the six-year window.
An IA is generally faster to set up, easier to qualify for, and less invasive than an OIC. It’s the preferred choice for taxpayers who are financially stable but need time to pay.
When it comes to resolving IRS tax debt, there’s no one-size-fits-all solution. An Offer in Compromise can dramatically reduce your tax burden, but it’s reserved for those in true financial distress. An Installment Agreement, on the other hand, offers a practical path for taxpayers who can pay over time.
The right choice depends on your unique financial situation — and that’s where professional guidance makes all the difference.
If you’re unsure which option best fits your needs, the experts at Geaux Tax Resolution can help. Their experienced team will review your income, assets, and obligations to determine the most effective strategy to resolve your tax debt and move forward with confidence.
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1795 W. Causeway Approach, Suite 102, Mandeville, LA 70471
📞 985-722-1040
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3909-L Ambassador Caffery, Suite B, Lafayette, LA 70503
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