Guidance for Tax Pros: Offer in Compromise vs Installment Agreement

When your client is ready to pay down their tax debt, they’ll be looking to you for expert guidance. Instead of floundering under a pile of paperwork and forms, let IRS Solutions™ help you collect important information and compare resolution options of offer in compromise vs installment agreement so you can make the right decisions for your client.

Understanding Available Options

Oftentimes, clients will be distressed when they come to you for help with back taxes. This is understandable, because the “unknown” is especially frightening. You can help put their mind at ease by educating them on the options available. Of course, before you can provide recommendations, you’ll need to perform an analysis of their financial situation. Drew Foster of IRS Solutions explains, “Tax resolution takes time to sort out. We start the process with a discovery meeting with the client and ask them to send all IRS notices they have. Also, we go over where they think they stand financially. I let them know our job is to assist them with getting the best solution possible, whether it be an Installment Agreement, Offer in Compromise, or Currently Not Collectable status.”

Discovery & Financial Analysis Steps

1. 1. Gather your client’s paperwork, any notices they may have, and find out where they think they stand with their tax debt.
   2. Have the client sign an engagement letter and secure a retainer payment, as this initial opinion is why the client is coming to you. 
   3. Secure Power of Attorney forms, so you can advocate on their behalf with the IRS. 
   4. Contact the IRS for access to their records. 
   5. Analyze  & respond back to your client with next steps and a realistic timeline of expectations.

Manage Expectations & Charge Appropriately

The most important thing you can do is manage your client’s expectations. Drew Foster explains, “You have to set realistic expectations so your client understands that these solutions don’t happen overnight and that they take time to resolve.” Co-founder David Stone adds, “Every client will have different wants and needs. Whenever I start off a case, I find out what the client’s desired resolution is so that I can figure out whether I can meet those expectations. Sometimes I have to adjust their expectations…and we always try to exceed them.”

Every case is different and you shouldn’t do this work for free. Set a flat fee for your analysis of their situation, then determine what your fee needs to be going forward, depending on the solutions for which they qualify and how complex the situation is. Our pricing guide is an especially great resource for any tax professional unsure of how to price his or her services. Grab a copy for yourself at the bottom of this post. 

Comparing an Offer in Compromise vs Installment Agreement 

There are many routes to settling debts to the IRS. If your client has little to no income and minimal assets, Currently Not Collectible (CNC) status might be an option. But today, we will be focusing on repayment scenarios. If your client is ready to make some form of payment, they have two main options that you need to be familiar with: Installment Agreements (IA) and Offer in Compromise (OIC).  

Installment Agreements

Entering into an Installment Agreement with the IRS allows your client to pay off their tax debt with monthly payments over an extended period of time. Your client must pay a fee to start the agreement and the IRS charges interest on the debt. Although this could mean that your client ends up paying more than was originally owed, it may be the only—or the best—option for clients who can’t come up with a lump sum. 

To file an installment agreement with the IRS, use Form 9465. The following agreement options are available from the IRS:

1. 1. • Guaranteed Installment Agreement – This option is only available to clients who owe $10,000 or less, and allows the client to negotiate a reasonable monthly payment to pay off their tax debt.
      • Streamlined Installment Agreement – If your client owes between $25,000 and $50,000, this installment agreement allows you to divide their tax debt into either 72 or 84 equal monthly payments, depending on the balance owed. These both can be done online. 
      • Non-streamlined Installment Agreement – The IRS added this option in 2020 for clients owing between $50,000 and $250,000. In this agreement, the IRS determines what payment will ensure the amount owed is paid off before the statute expires, which is 10 years from when the debt is assessed plus extensions.
      • Partial Payment Installment Agreement – This option can be more challenging to set up, because while your client still pays monthly, the IRS must agree going in that the client won’t pay back the entire amount before the debt expires.

Pro Tip: Within these agreements, you can sometimes negotiate the terms and penalties, or file for extensions to give your client more time. For example, David Stone secured a 180-day extension on his client’s $560,000 tax debt and made sure there was no lien filed, as that would have interfered with the credit line his client needed to run his business.

Offer in Compromise (OIC)

If you can prove that paying the tax debt in full is not possible or will create a financial hardship for your client, you can file an Offer in Compromise, which allows your client to settle their tax debt with a lump-sum payment that is less than they owe.

For example, one of David Stone’s clients owed over $1 million to the IRS, but became disabled in the year that followed and needed his resources to retrofit his life to accommodate his disability. The IRS ended up accepting a $26,000 lump sum payment as an Offer in Compromise to eliminate the debt.

To open negotiations on an OIC, you’ll need to file Form 433-A(OIC) in conjunction with Form 656. But before you do, consider the following potential drawbacks for your client: 

1. 1. • Will take time – The IRS can take anywhere from six months to two years to review your clients’ offer. 
      • May be the more difficult path – This option requires you to negotiate on your client’s behalf. You go in knowing that the IRS is looking for a reason to deny this path, because they get less money than they are due. 
      • Comes with long term requirements – The offer your client receives is contingent on their ability to pay their taxes in full. If they fail to pay at any time within that five-year period, the client will owe full amount of the original debt again, minus what was paid as part of the offer.  

How IRS Solutions Can Help

IRS Solutions gives you the tools you need to streamline your analysis and filing so that you can now finish in hours what might have taken you days in the past. Utilize our client portal to gather taxpayer data quickly and easily. Input your clients’ information just once and watch it auto-populate across all subsequent forms. Lean on our step-by-step worksheets to help you determine the best path for your client. And once you’ve settled on a game plan, IRS Solutions Software lays out everything you need to start negotiations with the IRS. 

Finally, if you ever have questions, don’t be afraid to reach out! IRS Solutions is more than a tax resolution software. We’re a built-in support system dedicated to your success.