The IRS allows individuals to revise some payment plans to include current-year tax balances. Offers in Compromise (OIC), however, cannot be amended to include the current tax year's tax.

Taxpayers apply for OICs when they're unable to pay the full amount of their unpaid taxes and request paying a lesser amount to satisfy their tax debt. If the IRS agrees to the OIC, taxpayers can either pay the agreed-upon amount in a lump sum or as part of a payment plan.

OIC Offer Terms

As part of requesting an OIC, taxpayers must agree to the offer terms. These can be found in Section 7 of Form 656. These terms include the following requirements:

•         Taxpayers must file tax returns and pay taxes in a timely manner for a five-year period that begins on the date the IRS accepts an OIC offer
•         Taxpayers must pay any liabilities for previous tax years that were not included in the OIC
•         Once an offer is accepted, a taxpayer cannot request an installment agreement for unpaid taxes or request an offer for five years after an OIC offer is accepted

Payment Plans

Unlike OICs, taxpayers may be able to add a current-year tax balance to a payment plan. One reason for the difference between installment agreements and OICs is that the former involves a taxpayer paying the full amount of unpaid taxes. OICs involve a lesser amount than the total amount due. 

This difference may also influence a taxpayer's choice between a payment plan and an OIC. For those struggling to pay their taxes, being unable to negotiate current and future tax payments may add to their financial burden.

This also underlines the importance of taxpayers making an OIC offer that is reasonable for their situation. Taxpayers should factor in estimated future tax payments when making an OIC offer or setting up a payment plan. 

If you need help, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.