Quick overview

Choosing a lump‑sum versus a periodic OIC affects how the IRS calculates your ability to pay, the documentation you must provide, and the timeline for resolution. The IRS applies the same review standard—reasonable collection potential (RCP)—but the payment structure changes the IRS’s practical view of available funds and risk.

How the IRS evaluates offers

  • Reasonable collection potential (RCP): The IRS estimates how much it can collect now and in the future by looking at assets, equity, monthly income, and allowable living expenses. (IRS, “Understanding Offers in Compromise”) [https://www.irs.gov/newsroom/understanding-offers-in-compromise]
  • Form and documentation: Most OIC submissions require Form 656 and a financial statement on Form 433‑A (individual) or 433‑B (business). The IRS will verify bank statements, pay stubs, asset valuations, and other supporting docs.

Lump‑sum offers — when they help

  • Definition: A single, one‑time payment to settle the liability.
  • Why they can improve eligibility: A credible lump‑sum backed by verifiable funds reduces IRS collection risk. If you have a sale, inheritance, or liquid savings, proposing a reasonable lump sum often makes the offer easier to accept.
  • Typical evidence: Current bank statements, escrow or settlement statements, wire records, and appraisals if selling collateral.
  • Tradeoffs: You must have cash or near‑cash assets; overpaying reduces your financial security.

In my practice, a verified lump sum from a legitimate source (e.g., sale proceeds) often shortens processing time and raises acceptance odds because the IRS can close the case quickly.

Periodic (partial payment) offers — when they help

  • Definition: A schedule of payments made over a defined period (often up to 24 months under typical partial payment terms used in OICs).
  • Why they can be viable: Periodic offers show willingness to pay from current income when no large asset exists. They work when monthly disposable income covers the proposed payments after allowed living expenses.
  • Evidence required: Recent pay stubs, profit/loss statements for small business owners, and bank statements to prove sustainable cash flow.
  • Tradeoffs: Periodic offers leave the IRS exposed to collection risk; the IRS may require more aggressive documentation and may prefer a higher total to offset that risk.

Practical examples

  • Lump sum: A taxpayer receives $15,000 from a business sale and offers $10,000 as a lump sum on a $28,000 liability. Because the funds are verifiable, the IRS views collection risk as low and may accept the reduced amount.
  • Periodic: A self‑employed taxpayer with steady monthly cash flow but no savings offers $400/month for 24 months. The IRS evaluates the sustainability of that income and allowable expenses before acceptance.

How to choose (step‑by‑step)

  1. Complete your financial statement (Form 433‑A/B) and calculate your RCP estimate. Internal resource: Preparing a Financial Statement for an Offer in Compromise: What the IRS Wants to See.
  2. Compare immediate liquid equity (cash, marketable securities, sale proceeds) vs. reliable monthly surplus.
  3. Assess documentation availability—lump sums require proof of funds; periodic offers require proof of sustained income.
  4. Use the option that yields the highest credible recovery to the IRS while preserving basic living needs.

Documentation and timing tips

  • Provide clear, contemporaneous proof for any lump sum (wire transfers, escrow closing, sale paperwork).
  • For periodic offers, prepare at least 3–6 months of bank and income records to demonstrate sustainability.
  • Don’t hide assets; the IRS will request verification and can reject or revoke an offer for omissions.

See also: “When to Use an Offer in Compromise Partial Payment vs Lump Sum” (https://finhelp.io/glossary/when-to-use-an-offer-in-compromise-partial-payment-vs-lump-sum) and “Preparing the Financial Documentation for an Offer in Compromise” (https://finhelp.io/glossary/preparing-the-financial-documentation-for-an-offer-in-compromise/) for document checklists and strategy.

Common mistakes to avoid

  • Assuming a higher lump‑sum always guarantees acceptance—RCP and documentation matter more than sticker price.
  • Submitting weak evidence for periodic capacity (one or two paystubs without bank flow history).
  • Overlooking future collectible potential—equity in non‑exempt assets can make an offer less likely to be accepted.

Next steps if the IRS rejects your offer

Authoritative sources

Professional note and disclaimer

In my work helping taxpayers prepare OICs, verifiable documentation and honest disclosure of assets consistently make the largest difference in acceptance. This article is educational and not personalized tax advice—consult a CPA or tax resolution pro for an analysis tailored to your facts.