Payment Plans With an Offer in Compromise

As a result of TIPRA or the Tax Increase Prevention and Reconciliation Act passed in 2005, the IRS will accept three payment methods or plans with an Offer in Compromise (OIC).

1. Lump Sum Offer (cash) - with this option the payment must be paid in no more than 5 payments if acceptance letter is mailed. When submitting form 656 (form for offer in compromise), 20% of the total amount due must be enclosed. If installments are to final in less than 5 months, the taxpayer should offer his total realizable assets (amount that can be offered if assets were sold in 90 days or less, minus what is owed to creditors like banks) plus the the total that can received over 48 monthly payments. If installments are to final in more than 5 months, the taxpayer should offer his total realizable assets (amount that can be offered if assets were sold within 90 days or less minus what is owed to creditors like banks) plus the total that can received over 60 monthly payments.

2. Short Term Periodic Payment Offer - this is a payment option where the taxpayer submits Form 656 (OIC letter offer) with the first payment and continuously makes payments during the investigation. The total offer amount must be collected with 24 months and any failure to make payments during the offer letter is being reviewed will translate to the offer being pulled. Again, the offer must be equivalent to the taxpayer's total realizable assets (explained in paragraph above) plus what could be payed in 60 months.

3. Deferred Periodic Payment Offer - Much like the Short Term Periodic Payment option, the taxpayer must submit the first payment along with Form 656 and continuously make payments during the review. This is an offer where the amount is to be paid over the remaining tax statutory period. Again, the offer must be equivalent to the taxpayer's total realizable assets (explained in paragraph above) plus what could be payed on a monthly basis till the end of the statutory period. Once again, any failure to make payments during the offer letter is being reviewed will translate to the offer being pulled.

It is important when submitting Form 656 that the payment plan selected is noted (one of the three above). There is a $150 application fee which is applied to your assessed tax. All payments submitted with the From 656 are non-refundable non matter what -- this means even if the IRS does not accept offer, terminates the offer, etc but the payment(s) is applied to your total tax debt balance.