How to Choose Between OIC CNC and Installment Plans

Introduction to tax relief Programs

When faced with tax liabilities that surpass your financial capacity to pay, it's crucial to understand the available tax relief programs. Among the most common options are the Offer in Compromise (OIC), Currently Not Collectible (CNC) status, and Installment Agreements. This article provides a comprehensive guide on choosing between these programs, with insights based on IRS guidelines and citations.

Understanding the Options

Offer in Compromise (OIC)

The Offer in Compromise is a program that allows qualified taxpayers to settle their tax liabilities for less than the full amount owed. It's an option for those who can demonstrate that paying the full tax liability would create financial hardship. According to the IRS, 'an OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.' (IRS Form 656 Booklet)

Currently Not Collectible (CNC)

Currently Not Collectible status is awarded when a taxpayer cannot pay their tax debt and cover basic living expenses. In CNC status, the IRS temporarily suspends collection efforts. However, interest and penalties continue to accrue. The IRS reviews CNC status periodically to determine if the taxpayer’s financial situation has improved.

Installment Agreements

An installment agreement with the IRS allows taxpayers to pay off their tax liabilities over time through monthly payments. This is a viable option if you can pay your debt but need extended time. The IRS offers various types of installment agreements, each with specific eligibility criteria.

Eligibility Criteria

Offer in Compromise

Eligibility for an OIC requires a detailed financial disclosure. Generally, the IRS considers if the amount offered is the most they expect to collect in a reasonable period of time, based on the taxpayer's income and assets.

Currently Not Collectible

To qualify for CNC status, a taxpayer must complete Form 433-F or Form 433-A to document financial hardship. The IRS will evaluate income, expenses, and other financial obligations.

Installment Plans

Installment plans are broadly available to taxpayers who owe up to $50,000, with specific eligibility for different types of agreements, such as the Guaranteed Installment Agreement or the Streamlined Installment Agreement.

Actionable Steps to Determine the Best Option

Step 1: Evaluate Your Financial Situation

Start by assessing your complete financial profile. This includes income, expenses, assets, and liabilities. Prepare the necessary IRS forms, such as Form 433-A or Form 433-F.

Step 2: Utilize IRS Tools

The IRS provides tools like the Offer in Compromise Pre-Qualifier tool to help determine eligibility for an OIC.

Step 3: Consult with a Tax Professional

Given the complexity of these programs, consulting a tax professional or a certified public accountant (CPA) can provide guidance based on your specific circumstances.

Step 4: Consider Future Implications

Evaluate how each option may affect your long-term financial situation. For instance, CNC status offers temporary relief, whereas an OIC requires commitment and possibly selling assets.

Conclusion

Choosing between OIC, CNC, and installment plans requires a nuanced understanding of each program's implications and your financial condition. This decision can significantly impact your financial future, and making the right choice is crucial. For personalized assistance and expert guidance, visit our dashboard for professional help.