IRS OIC vs. Installment Agreement: Which Wins?
When Tax Debt Looms: Comparing IRS Offers in Compromise and Installment Agreements
If you’re facing an IRS tax bill you can’t pay in full, you’re not alone. Millions of taxpayers struggle with unpaid tax debt each year. The good news is that the IRS offers legitimate relief options to help resolve balances owed. Two of the most common solutions are the Installment Agreement (IA) and the Offer in Compromise (OIC).
Each option has different eligibility requirements, approval standards, and long-term consequences. Understanding how they work—and which one fits your financial situation—can help you resolve your tax debt and regain financial stability.
What Is an Installment Agreement?
An Installment Agreement is an IRS payment plan that allows you to pay your tax debt over time through monthly payments. The IRS offers both short-term and long-term installment plans, depending on how much you owe and how long you need to pay it off.
Installment Agreement Eligibility Requirements
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Short-term payment plan
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Owe less than $100,000 in combined tax, penalties, and interest
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Up to 180 days to pay in full
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Long-term payment plan
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Owe less than $50,000 in combined tax, penalties, and interest
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Monthly payments allowed up to the IRS collection statute expiration date (usually 10 years)
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You must have all required tax returns filed. Taxpayers who exceed these thresholds may still qualify but will need to provide detailed financial information to the IRS.
Installment Agreement Application Process
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Apply online at IRS.gov for the fastest approval
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Apply by phone, mail (Form 9465), or in person
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Setup fees may apply, though low-income taxpayers may qualify for reduced or waived fees
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Once approved, you must make timely payments and remain compliant with future tax obligations
Pros of an Installment Agreement
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Easier to qualify for than an Offer in Compromise
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Stops most IRS collection actions while the agreement is active
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Multiple payment options, including direct debit and payroll deduction
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Reduced late payment penalty (0.25% per month if the return was filed on time)
Cons of an Installment Agreement
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Interest and penalties continue to accrue
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Missing payments can cause default and renewed collection activity
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No reduction of the total tax debt (unless approved for a Partial Payment Installment Agreement)
What Is an Offer in Compromise?
An Offer in Compromise allows eligible taxpayers to settle their IRS tax debt for less than the full amount owed. The IRS only accepts an OIC if it believes it cannot collect the full amount or that doing so would cause economic hardship or be unfair.
Offer in Compromise Eligibility Requirements
To qualify, you must:
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File all required tax returns
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Make required estimated tax payments
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Not be in an open bankruptcy proceeding
The IRS evaluates your income, expenses, assets, and future earning potential. There are three types of OICs:
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Doubt as to Collectibility (DATC): You cannot pay the full debt
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Doubt as to Liability (DATL): You dispute the accuracy of the tax assessed
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Effective Tax Administration (ETA): Paying in full would cause economic hardship or be inequitable
Offer in Compromise Application Process
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Submit Form 656 and Form 433-A (Collection Information Statement)
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Pay an application fee and initial payment (waived for qualifying low-income taxpayers)
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Use the IRS Offer in Compromise Pre-Qualifier Tool to assess eligibility
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The IRS conducts a detailed financial review
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Collection actions are generally suspended while the offer is under review
Pros of an Offer in Compromise
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Potential to settle tax debt for less than the full amount owed
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IRS collection actions paused during review
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Fresh financial start after successful completion
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Tax liens may be released once the offer is satisfied
Cons of an Offer in Compromise
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Strict eligibility requirements
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Extensive financial documentation required
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Low acceptance rate (approximately 30–35%)
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Long processing times, often several months or longer
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Five years of mandatory tax compliance after acceptance
IRS OIC vs. Installment Agreement: Which Option Is Better?
An Installment Agreement Is Usually Better If:
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You can afford to pay your tax debt over time
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You want a faster, simpler resolution
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You have assets or income that disqualify you from an OIC
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You want to avoid detailed financial scrutiny
An Offer in Compromise Is Better If:
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You cannot pay your tax debt in full, even over time
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Your income and assets are insufficient to cover the liability
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Paying the full amount would cause severe financial hardship
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You dispute the amount owed
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You want to resolve your tax debt for less than the full balance
Special IRS Tax Relief Considerations
Partial Payment Installment Agreement (PPIA)
If you can pay something but not the full amount before the collection statute expires, you may qualify for a PPIA. The IRS reviews your finances every two years and may adjust payments based on your ability to pay.
Currently Not Collectible (CNC) Status
If you cannot pay anything, you may qualify for CNC status. This temporarily stops IRS collection activity, though interest and penalties continue to accrue and tax liens may still be filed.
Conclusion
Both Installment Agreements and Offers in Compromise are powerful IRS tax relief tools, but they serve very different financial situations. Installment Agreements are generally easier, faster, and more predictable. Offers in Compromise can provide significant relief but require strict qualification and patience.
No matter which option you pursue, filing your tax returns on time and addressing IRS notices promptly is critical. Acting early gives you more options and reduces the risk of enforced collection.
External IRS Resources
Contact us today to discuss your tax situation and explore your resolution options.
