Tax Debt: Installment Agreements and Offers in Compromise

Short-term payment plan

For balances under $100,000 (combined tax, penalties, interest), the IRS offers a short-term plan up to 180 days at no setup fee. Apply online through the IRS Online Payment Agreement tool. Penalties and interest continue to accrue, but the plan stops collection action while you pay.

Long-term installment agreement

For balances under $50,000, you can request an installment agreement of up to 72 months online. Setup fee is reduced or waived for low-income filers. Monthly payment must be sufficient to pay the balance within the term. Direct-debit installments have a lower setup fee than non-direct-debit.

Partial-pay installment agreement

For balances you cannot pay in full within the statute of limitations on collection (10 years), the IRS may agree to a partial-pay installment agreement based on your monthly disposable income. The unpaid balance after the 10-year statute is generally written off — though the IRS reviews these agreements every 1-2 years and may demand higher payments if your finances improve.

Offer in compromise

An offer in compromise (OIC) settles the entire tax liability for less than the full amount when payment in full would create economic hardship or doubt as to liability/collectibility. The IRS approval rate is around 30-40% — most rejections are because the taxpayer's "reasonable collection potential" exceeds the offered amount. Form 656 + Form 433-A (or 433-B for businesses) is the application.

When to engage representation

For balances over $25,000, payment-plan complications, or any OIC, hiring a CPA, EA, or tax attorney is usually worth the cost. Self-help works for routine installment agreements; complex cases benefit from professional help in choosing the right approach and presenting the facts effectively.

Where the IRS publishes guidance on this topic

The IRS publishes a layered set of free resources on most small-business tax topics: a relevant publication (usually one of Pub 334, 463, 535, 587, 946, 560, or 583), the instructions to the relevant form, the "Small Business and Self-Employed Tax Center" landing pages on IRS.gov, and the Audit Techniques Guides written for IRS examiners. Reading the agency's own materials is the cheapest tax education available. They are written in plain English, updated annually, and they reflect exactly the framework an examiner will apply if your return is selected.