What are the payment options in an IRS Offer in Compromise?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 16, 2021

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An IRS offer in compromise provides debt relief for people who are either unable to pay due to insufficient assets or for whom payment would be unfair and inequitable. As part of the offer in compromise, the IRS offers two options for repaying your offer amount. The first option requires payments of set amounts to be completed within five months from the date of submission. The second option requires monthly installment payments of your set amount until the debt is paid in full.

Payment Option 1

Payment Option 1 can be found in section five of the offer in compromise form. In this offer, you are expected to make a first payment that is 20 percent of your total offer. So, if owe $10,000 in tax debt and are offering the government $5,000 as your offer in compromise, then your down payment would be $1,000, leaving a balance of $4,000. You can then divide the rest of the money owed into as many as 5 additional payments, specifying the amount of each payment and the date that the IRS will receive it. As a general rule, it is advisable to select dates no further than five months from the date of submission for this option.

Payment Option 2

Payment Option 2 can be found in section five directly under Payment Option 1 on the offer in compromise form. With the second option, you set a monthly payment amount, the first payment of which is received with the application. The amount should be in accordance with your financial situation. So, if your offer is again $5,000, but you can only afford to pay $208.33 each month, then you will pay the IRS the $208.33 for 24 months (with a few pennies more on the last payment). With this second option, failure to pay for even one month results in an automatic revocation of the offer in compromise. Additionally, while you are making payments on your offer, any tax returns from your filings are applied directly to the repayment of your tax debt.

Down Payment

With both payment options, a down payment of $186 is required with the application. This down payment is non-refundable and will be applied as a credit toward the debt that you owe. If you cannot afford the down payment, the down payment can be waived if you meet the low income requirements found in Section 4 labeled “Low Income Certification.” Under this document, those with a monthly income lower than that listed for the size of your household do not have to pay the $186 filing fee. If you are utilizing this option, make certain that you check the box in Section 4.

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