How to Choose Between Offer in Compromise, Currently Not Collectible Status, and Installment Plans

Understanding tax relief Programs

When facing financial struggles, taxpayers often turn to the Internal Revenue Service (IRS) for relief options. Among these options are the Offer in Compromise (OIC), Currently Not Collectible (CNC) status, and Installment Plans. Each program serves different purposes and caters to unique taxpayer circumstances. Deciding which option is right for you requires a deep understanding of your financial situation and how each program operates.

Offer in Compromise (OIC)

The OIC program is designed to help taxpayers settle their tax liabilities for less than the full amount owed. This is typically available to taxpayers who cannot pay their tax debt in full and who can demonstrate that the amount offered is the most they can pay based on their income, expenses, and asset equity. It's important to note that an OIC is not guaranteed; the IRS considers several factors before approval.

IRS Citation: Offer in Compromise

Currently Not Collectible (CNC) Status

When the IRS classifies an account as Currently Not Collectible, it does not mean the debt is forgiven. Instead, it merely pauses collection efforts until the taxpayer's financial situation improves. While interest and penalties continue to accrue, CNC status can provide temporary relief for those unable to make any payment toward their tax debts.

IRS Citation: Currently Not Collectible Status

Installment Plans

For taxpayers unable to pay their tax liability in a single payment, the IRS offers installment agreements. These plans allow taxpayers to pay their tax debts over time in monthly installments. While interest and penalties apply, this option can make large debts manageable.

IRS Citation: Installment Plans

Comparing Options: OIC vs. CNC vs. Installment Plans

Payment Ability:

• OIC: Best for those who cannot pay their full tax liability but can offer a reasonable settlement.
• CNC: Suitable for those unable to make any payments due to severe financial hardship.
• Installment Plans: Ideal for taxpayers who can pay their debt over time.

Impact on Credit:

• OIC: May improve credit once resolved.
• CNC: No immediate effect, but unresolved debts could lead to future issues.
• Installment Plans: Manages debt without the negative impact of collections, but may appear on credit reports.

Application Process:

• OIC: Requires detailed documentation and negotiation; lengthy process.
• CNC: Requires proof of financial hardship; potentially complex.
• Installment Plans: Straightforward application, especially for lower debts.

Actionable Steps to Determine the Best Option

1. Evaluate Your Financial Situation: Calculate your income, expenses, and equity in assets.
2. Research Each Program Thoroughly: Understand eligibility and application requirements.
3. Contact the IRS for Guidance: Utilize IRS resources or contact a tax professional for assistance.
4. Prepare Documentation: Gather all necessary financial documents and information.
5. Consult a Tax Professional: Consider professional advice for complicated cases.

Frequently Asked Questions

• Can I apply for multiple programs at once? Generally, you can only apply for one program at a time, so choose the option that best fits your situation.
• What happens if I default on an installment plan? The IRS may terminate the agreement and resume collection actions.
• Does CNC status affect my credit score? While IRS actions themselves do not, unpaid debts can lead to issues with creditors and affect your score.
• How long can CNC status last? It varies; the IRS periodically reviews your financial situation.
• Is professional assistance necessary for an OIC? Though not mandatory, professional help can increase your chances of acceptance.
• Are there fees for setting up an installment plan? Yes, there are typically user fees involved.
• Can the IRS reject an OIC? Yes, the IRS can reject offers that do not meet their criteria.

For more assistance and personalized advice, visit our dashboard for professional help with your tax relief options.