The traditional Offer in Compromise with the IRS is a cash lump-sum amount paid to settle your entire tax debt. For example, recently, we have seen a cash offer done by Washington Tax Services for a client -- $2000 -- to settle a $50,000 estimated IRS liability. These "cash offers" represent the majority of Offer in Compromises.

However, there is an alternative to the cash offer IF YOU QUALIFY for it and that is a two year payment Offer. For example, you owe $50,000 and the IRS agrees to accept $500 monthly payments for 24 months or $12,000 to settle the debt. The 12 month Offer is calculated multiplying your disposable income (using IRS standards) by 60 months plus quick sale of assets. Due to this formula -- you will always pay a bit more in a two year payment plan Offer over a cash offer.

We have seen these two year payment plan Offers best suited to people who want to get an OFFICIAL agreement with the IRS -- as their income might fluctuate or increase going forward. The Offer in Compromise is CONTRACTUAL so the IRS when agreeing to an Offer must hold it's end of the bargain EVEN IF your income increases down the road.

UPDATE MAY 2012:

New rules in the Offer in Compromise program also need to be considered: 2012 Rule Changes to Offer in Compromise Program

OR You can read more about the Offer in Compromise in my collection of articles Offer in Compromise -- Issues and Angles.

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