Offer in Compromise vs. Installment Agreement
An Offer in Compromise (OIC) and an installment agreement are two of the most common ways to resolve back taxes with the IRS, but they work very differently — one aims to settle for less than owed, the other spreads full payment over time.
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Offer in Compromise
A negotiated agreement to settle tax debt for less than the full amount owed, based on a detailed review of the taxpayer's income, expenses, assets, and future earning potential.
- Can reduce the total amount owed if accepted
- Resolves the debt permanently once approved and terms are met
- Acceptance rates are limited — many applications are rejected
- Requires extensive financial documentation
- Application fees are generally non-refundable even if rejected
Installment Agreement
A monthly payment plan that allows the taxpayer to pay the full balance owed, plus accrued penalties and interest, over an extended period.
- Generally easier to qualify for than an Offer in Compromise
- Can stop certain collection actions once in place
- Available for a wide range of balance amounts
- Full balance is still owed, plus ongoing interest and penalties
- Monthly payments continue until the balance is paid off
- Missing a payment can default the agreement
Which one makes sense for you?
An Offer in Compromise can meaningfully reduce total tax debt but has a limited acceptance rate and requires thorough documentation. An installment agreement is generally more accessible and can stop some collection actions, though the full balance plus interest and penalties remains owed. A tax professional can help assess which a specific situation is likely to qualify for.
Key cost factors.
- Total tax debt relative to income, expenses, and asset equity
- Ability to document financial hardship for an Offer in Compromise
- How quickly the debt needs to be addressed
- Whether a lien or levy is already in place
Before you decide.
- Based on my finances, do I realistically meet the IRS's Offer in Compromise criteria?
- What would my estimated monthly payment be under an installment agreement?
- What happens to penalties and interest under each option?
Frequently asked questions.
Can I apply for an Offer in Compromise on my own?
Yes, taxpayers can apply directly with the IRS without a representative, though many hire a tax professional to help prepare the extensive required financial documentation.
All figures on this page are illustrative examples for general education, not quotes, appraisals, or guarantees of actual pricing. Actual costs vary by provider, location, project scope, and market conditions — always get a specific quote before making a purchasing decision.
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