Offer in Compromise or Currently not Collectible - What Is Your Best IRS Solution

Failure to meet your annual income tax obligation is an invitation to severe financial and legal consequences. The IRS can and will impose legal penalties, delay reimbursement, and in worst-cases, seize your possessions and can put you behind bars. There is no escape from filing and paying your taxes, but the IRS provides a few avenues to help those who are unable to make payments due to financial difficulties. 

An Offer In Compromise and Non-Collectible status are two solutions available to help taxpayers who meet the IRS’s financial hardship criteria. Both options, however, have their pros and cons, which you need to be aware of to make an informed decision on which avenue to pursue to resolve your tax issues. To help you decide, we discuss the details in the blog post.

Offer in Compromise

An IRS Settlement through the Offer In Compromise program allows the taxpayer to settle their entire income tax debt by paying an amount that is far less than what is actually owed to the IRS. 

Certain criteria must be met, then if the IRS agrees to your Offer in Compromise, the taxpayer must file income tax returns on time and pay the tax in full for the next five years.

Offer in Compromise Advantages

(a) An Offer in Compromise (OIC) removes a Federal tax lien against the taxpayer.
(b) As your income tax debt goes away, you earn more money by not having to pay back taxes.
(c) Your Offer in Compromise settlement can be paid over many months.



Offer in Compromise Disadvantages (Minimal)

(a) You have to pay $186 as a filing fee to process the request.
(b) There is a possibility of the IRS rejecting the request.
(c) You have to be perfectly tax compliant for five years, once your Offer in Compromise settlement request is accepted

Currently not Collectible Status

If you are unable to pay your tax debt, the IRS may consider your eligibility for Currently not Collectible Status (CNC). The IRS will cease all collection activities, which includes levies and garnishments, until the IRS notices an improvement in your financial condition. 

The IRS will send a statement that includes detailed information of the income tax debt to the taxpayer every year the account is in Currently not Collectible (CNC) status. If the taxpayer is not able to pay the amount, the IRS will keep postponing the collection.

Currently not Collectible Advantages

(a) You don’t have to pay any amount to the IRS.
(b) You don’t have to worry about tax levies and garnishments.
(c) The Statute of Limitations continues to run out on your income tax debt.

Currently not Collectible Disadvantages

(a) Despite the CNC status, you still owe the IRS and a Federal tax lien will more than likely be filed against you.
(b) If you do not file a return, there is a probability of cancellation of the uncollectible status
(c) Dramatic increase in income can also lead to cancellation of the status.
(d) At any time, the IRS could rescind your protected status.

Making a Decision

The best IRS help team at Flat Fee Tax Service, Inc., use this analogy to explain the difference between doing an Offer in Compromise settlement and being declared Currently not Collectible.

Imagine that you are a marathon runner. You run a marathon and when you are 200 yards away from the finish line, you decide to stop running. Well the difference between an Offer in Compromise and Currently not Collectible is a lot like that.

If the IRS has declared you to be Currently not Collectible and the IRS has declared you cannot pay your past due income tax debt, why don't you finish the race and do an Offer in Compromise settlement?

Although, the Currently not Collectible status saves you from paying anything for a specific amount of time, the Offer In Compromise settlement is a better tax resolution avenue as you do not have to worry about the future. 


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