IRS Offers in Compromise, What are the Payment Methods?

Published: 03rd September 2008
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One of the settlement programs offered by the IRS is what is known as an Offer in Compromise. With this tax resolution, taxpayers make an agreement with the Internal Revenue Service to settles their tax liabilities for less than the full amount owed. One of the most popular Offer in Compromise payment methods is with a lump sump, but there are actually several other payment methods the IRS accepts.

While many people have heard of the Offer in Compromise program, they may not be aware of the different ways the offer amount, or tax settlement amount, can be paid. There are several available payment structures, but two structures are the most common. These structures are the Lump Sum Cash Offer and the Short Term Periodic Payment Offer. Both of these structures are often called by other names. The Lump Sum Offer is commonly called a Cash Offer or Lump Sum Offer. The Short Term Periodic Payment Offer is often called a Short Term Deferred Offer. Of all those names, Lump Sum and Short Term Periodic Payment are the most accurate descriptions of these two types of payment structures.

In essence, a Lump Sum Offer is just what it sounds like - a one-time payment for the entire offered amount. A Short Term Periodic Payment Offer, on the other hand, breaks up the offered amount into monthly payments, usually 24 monthly payments. For example, if you offered $2,400 to settle the tax debt, you could pay $100 over 24 months to cover the entire offered amount. Sounds straightforward, right? Well, there's a little more to each of these types of structures, as is explained below.

When a taxpayer files a Lump Sum Offer in Compromise, the IRS does not require the taxpayer to pay the entire offered amount before the IRS will accept the offer. Rather, the IRS allows the taxpayer to pay only a portion of the offered amount when the offer is filed. For a Lump Sum Offer, the IRS requires that 20% of the offered amount be submitted when the offer is filed. For example, if you offered $1,000 to settle your back taxes, the IRS would require that you submit a $200 deposit with the filed offer. Then, once the offer is accepted, the remaining $800 ($1000 offer - $200 deposit) must be paid within five months of the acceptance date.

For a Short Term Periodic Payment Offer, the IRS also requires a deposit with a filed offer. Usually, the deposit amount is the same as the monthly payment you are offering. In other words, your deposit amount is usually the first of the 24 monthly payments you offer to make. For example, if you offered to pay $100/month for 24 months (totaling $2,400) your deposit would be $100. Also, you would have to continue to make a $100 payment every month while your Offer in Compromise is under consideration, before it is accepted. If one monthly payment is missed, the IRS can return your Offer in Compromise. Thereafter, if you wanted to file another Offer in Compromise, you would have to start the process over. After the offer is accepted, you would have to continue to make the monthly payments until the $2,400 is paid in full.

There are advantages and disadvantages to each of these types of pay structures. The structure that best fits your situation depends a great deal on your individual circumstances.

The Tax Lady Roni Deutch and her law firm Roni Lynn Deutch, A Professional Tax Corporation have been helping taxpayers across the nation find IRS tax relief for over seventeen years. The firm has experienced tax attorneys who will fight the IRS on your behalf.

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