Internal Revenue Service Rejection of Offer in Compromise: Requesting an Installment Agreement

Rejection from the Irs on an Offer in compromise application understandably might fill you with a bit of anxiety and panic, but don’t fear — you can proceed with the choice of paying the full amount owed in payment installments.

The Irs offers a couple of installment agreement payment options such as partial-payment installment plans or full-payment installment plans. Full-pay plans might be the financially verified installment agreement, the streamlined installment agreement, and the guaranteed installment agreement. The payment plan you qualify for is based on financial info you supply to the Irs, but the monthly payment installments for these courses are assessed a bit differently than Offer in compromise settlement amounts.

In this discussion we’ll explain the payment options and help you establish which option of payment is most accommodating for you.

The Guaranteed Installment Agreement

The guaranteed installment agreement plan is available only if your tax debt is under $10,000 and payments will pay in full your total Irs debt within three years. The Internal Revenue Service must consent to this purposed plan if you fit their requirements.

The Streamlined Installment Agreement

The streamlined installment agreement is is a means a payment if your owed balance is equal to or under $25,000 and you consent to pay in full your entire balance in the period of five years. This full balance takes into account your principal tax liability, plus interest and penalty accruals for each tax year you have a balance.

Figuring Your Monthly Payment

In order to determine the lowest amount the Internal Revenue Service will permit each month, divide the total amount owed, including the interests and penalities, by 50. The end result will tell the base amount you must pay. The left-over 10 months of the 60-month payment plan is set aside for interest. If you have insufficient disposable monthly income to warrant a 60-month payment plan, you might meet the criteria for a partial pay plan in lieu.

The Partial Pay Installment Agreement

A partial payment installment agreement is a plan that will allow you to pay only what you can afford to pay on a month by month basis, even if the amount is below what the Internal Revenue Service typically consents to in an installment agreement. You must make payments for the remainder of the period the Internal Revenue Service can legally collect your debt, this may be longer than 5 years. When the collection statute of limitations comes to its expiration date, any balance that remains is then written off by the Internal Revenue Service. This repayment option is called a partial pay installment agreement as you never will pay the absolute balance you owe.

Collection Statute of Limitations

A statute for collection exists in each tax year you have a tax debt balance. The statute begins when you file your tax return, or the date in which a principal tax balance is assessed, whatever is more recent. The statue will usually end within 10 years, though there are certain instances when a collection statute can extend passed 10 years. You or your power of Attorney may contact the IRS and request the Collection Statue Expiration Date (CSED) for each balance-due period.

Determining Payments

The partial pay installment agreement is based on your disposable monthly income, which is the amount of money left each month after your expenses are paid. Calculate your monthly disposable income by the number of months remaining on your collection statute to calculate the total amount you are going to pay the Irs over time. That is, if disposable income is $100 and the amount of time remaining on the collection statute is two years, or 24 months, you will pay $2,400 toward your tax liability. The remainder is uncollectable by the Irs. Though, you have to make these payments in installments and you cannot offer the amount in one payment.

Financially Verified Installment Agreement

The financially verified or “Non-Streamlined” installment agreement is assessible when your due balance is over $25,000 or where the repayment period exceeds five years. This agreement must be negotiated with the Irs. Full financial disclosures must be furnished to the Irs. Your monthly payment amount is based on your full-picture financial situation, and the Irs may possible require that you liquidate assets in order to reduce the remaining balance.

The Rules that Apply to all Installment Agreement Plan Options

No matter the option of payment plan you request, some base rules apply for obtaining and retaining your installment agreement contract.

Offer In Compromise Rejection Period

More often than not, you must wait at least a period of 60 days post the date of your OIC rejection letter to request an installment agreement. During this 60 day period, your file is coded as an Offer case in the Internal Revenue Service system to permit for your legal right to appeal the rejection. Internal Revenue Service agents are unable to change the status of your case to mark it as an installment agreement.

Staying Current and Compliant

When you are locked into an installment agreement, then you need to remain compliant and up to date with the decided payment arrangements and new tax commitments. Meaning that while you’re in the installment contract, then you need to make all installment pay dates in full and on time, file all tax returns according to the schedule, and pay all new tax balances on time and in full.

Failure to comply with these stipulations will cause your payment plan to default and open you up to additional IRS collection measures.

A Change in Financial Circumstance

A change in your financial circumstance that will stymie your ability to meet set pay dates, may warrent that you make a modification to your monthly installment payments.

The change in your financial situation should be considered permanent, or expected to last longer than one month. Examples of acceptable financial changes include loss of income, a reduction in income, divorce, the addition of a dependent or an increase in regular living expenses. The IRS will request an updated financial statement and proof of new expenses to process the modification request.

Modifications might result in your full-pay installment agreement being translated to a partial payment plan. Installment agreements are in many cases less effortless to establish with the Irs and incur less desk work than an Offer In Compromise application. This installment agreement plan provides a an alternative to an Offer In Compromise rejection.

Check out the OIC Guide at Accountants & Tax Preparers in Kirkland

About Shoreline CPA
Shoreline CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. Since 2002, he has been the owner of <a href=""Huddleston Tax CPAs. He is a graduate of Washington State University and the University of Washington School of Law.

Speak Your Mind

Tell us what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!

  • Huddleston Tax CPAs / Huddleston Tax CPAs – Shoreline, WA
    Certified Public Accountants Focused on Small Business
    18208 66th Avenue NE, Suite 102 Kenmore, WA 98028

    Huddleston Tax CPAs & accountants provide tax preparation, tax planning, business coaching,
    QuickBooks consulting, bookkeeping, payroll, offer in compromise debt relief, and business valuation services for small business.

    We serve: Federal Way, Des Moines, Kent, Auburn, and communities throughout WA and beyond. Call to meet John C. Huddleston, J.D., LL.M., CPA, Lance Hulbert, CPA, Grace Lee-Choi, CPA, Jennifer Zhou, CPA, or Jessica Chisholm, CPA. Member WSCPA.