Background and context

The IRS Fresh Start Initiative (introduced in 2011) broadened access to payment plans and clarified collection procedures, but it isn’t a one-size-fits-all fix. Taxpayers who don’t qualify or who need different relief should consider several established alternatives. For official guidance, see the IRS Fresh Start overview (IRS) and related program pages (IRS: Installment Agreement Options; IRS: Offer in Compromise; IRS: Currently Not Collectible).

Core alternatives and how they differ

  • Installment agreements: A formal payment plan allowing monthly payments until the tax liability is resolved. Terms vary by balance, compliance history, and financial circumstances. Interest and penalties typically continue to accrue while the agreement is active. The IRS offers online application tools and streamlined options; for a step-by-step guide, see our How to Apply for an IRS Installment Agreement Online article.

  • Offer in Compromise (OIC): The IRS may accept a lesser amount than owed when collection of the full liability would create economic hardship and the offer reflects reasonable collection potential. OIC applications require detailed financial disclosure and are evaluated against IRS formulas for income, expenses, and asset equity (IRS: Offer in Compromise). For a comparison of OIC vs partial-payment plans, see our Offer in Compromise vs Partial Payment Installment Agreements article.

  • Currently Not Collectible (CNC) status: If your verified monthly expenses leave no ability to pay, the IRS can place your account in CNC. That halts most collection actions (like levies) temporarily, but penalties and interest continue and the debt isn’t forgiven. CNC is typically revisited as situations improve (IRS: Currently Not Collectible).

  • Alternative paths to consider: penalty abatement requests (for reasonable cause), filing a collection due process (CDP) appeal to challenge liens/levies, requesting a temporary delay for bankruptcy or medical emergencies, or negotiating a partial-payment installment agreement when full repayment isn’t feasible.

Real-world examples (illustrative)

In my practice I’ve seen these outcomes:

  • A self-employed taxpayer used a partial-payment installment agreement to stop aggressive collections while rebuilding cash flow. The formal plan created predictable payments and preserved the taxpayer’s ability to operate.
  • A client with low disposable income qualified for CNC after documenting unreimbursed medical expenses and necessary living costs; collections were paused while circumstances improved.
  • An OIC succeeded for a small-business owner after we prepared a conservative, well-documented offer based on liquid asset values and allowable living expenses.

Who typically qualifies

  • Installment agreements: taxpayers unable to pay in full but who can afford monthly payments and are current on filings and estimated tax obligations.
  • OIC: taxpayers who can show inability to pay full liability through available income/resources and who meet IRS evaluation criteria.
  • CNC: taxpayers with no reasonable ability to pay after allowable living expenses are applied.

Key pros and cons (summary)

  • Installment agreements
    Pros: predictable payments, avoids immediate enforced collection, maintains compliance.
    Cons: interest and penalties continue; missed payments can trigger defaults.

  • Offer in Compromise
    Pros: potential to substantially reduce liability.
    Cons: rigorous review, non-guaranteed, requires full financial disclosure and often months to process.

  • Currently Not Collectible
    Pros: temporary relief from levies/collection while income is insufficient.
    Cons: debt remains; penalties and interest may continue; IRS can re-evaluate.

Practical tips and best practices

  • File all required tax returns before applying for any relief—applications generally won’t be accepted for unfiled years.
  • Keep accurate, up-to-date financial records (pay stubs, bank statements, bills). Documentation shortens processing and strengthens applications.
  • Consider a professional review if your situation is complex—errors on OIC forms or financial worksheets can lead to denials or delays. In my experience, preparing conservative, well-documented offers improves approval odds.
  • Understand collection consequences: some options require payment up front (OIC processing fees in some cases), while others may require continuing compliance with future tax obligations.

Common mistakes to avoid

  • Assuming you don’t qualify without checking—many relief paths have flexible criteria and exceptions.
  • Missing tax filings or estimated payments; lack of compliance can disqualify you for many programs.
  • Underestimating paperwork: OICs and CNC claims often require detailed monthly budgets and asset schedules.

Frequently asked questions

  • Can I apply for more than one option at once?
    Typically, you cannot have an active OIC while an installment agreement covers the same liability, and eligibility rules vary. Speak with a tax professional for strategy tailored to your case.

  • Will penalties and interest stop under CNC or an installment agreement?
    Generally, penalties and interest keep accruing under installment agreements and during CNC status. OICs, if accepted, can settle penalties and interest as part of the compromise amount.

Where to get authoritative help

Related FinHelp resources

Disclaimer

This article is educational only and does not constitute tax advice. Rules, thresholds, and procedures can change—consult a qualified tax professional or the IRS for guidance specific to your circumstances.