Overview
When an Offer in Compromise (OIC) is unlikely or inappropriate, taxpayers still have several proven ways to manage or reduce IRS collection pressure. In my practice as a CPA and tax adviser, clients often find faster, lower-risk relief with payment plans, temporary collection suspensions, or targeted administrative remedies rather than pursuing an OIC. Below I explain the main alternatives, who they help, how to apply, and the trade-offs to consider.
Why an OIC might not be the best option
An OIC requires meeting strict IRS eligibility tests and supplying detailed financial disclosures. The IRS will accept an OIC only when it believes the offered amount is the most it can reasonably expect to collect (see IRS Offer in Compromise guidance). Common reasons taxpayers look for alternatives:
- Income or assets make an OIC unlikely to be accepted.
- The time and documentation to support an OIC are infeasible.
- Immediate relief from collection actions (levies, garnishments) is the priority.
If you want a quicker administrative solution or need to stop enforcement while you reorganize cash flow, one of the alternatives below may be a better fit.
Installment agreements (standard and partial-payment)
What it is: A formal IRS payment plan that lets you pay a tax balance over time. The most common is a full‑payment installment agreement, but the IRS also offers partial payment installment agreements (PPIA) for those who can’t realistically pay the full balance within the collection statute of limitations.
How to apply: Small balances can often be set up online using the IRS Online Payment Agreement tool; larger or more complex plans require Form 9465 (Installment Agreement Request) and sometimes a Collection Information Statement (Form 433‑A or 433‑F) (IRS, Online Payment Agreement; Form 9465; Form 433‑F).
Pros:
- Fast to establish, often within days when set up online.
- Stops many enforcement actions if you stay current.
- Retains control: you can negotiate payment amounts and terms.
Cons:
- Interest and penalties continue to accrue until the balance is paid.
- Missed payments can trigger default and renewed collection activity.
- A PPIA may require detailed financial disclosure and periodic review.
Practical tip: For many clients I recommend starting with a short-term installment plan while preparing documents for a longer-term solution, such as a PPIA or bankruptcy evaluation.
Further reading: See when an installment agreement is better than an OIC for a side‑by‑side comparison (finhelp.io).
(Internal link: When an Installment Agreement Is Better Than an Offer in Compromise: https://finhelp.io/glossary/when-an-installment-agreement-is-better-than-an-offer-in-compromise/)
Currently Not Collectible (CNC) status
What it is: CNC is an administrative determination that the IRS will temporarily suspend active collection (levies, garnishments) because paying would create significant financial hardship.
How it works: To request CNC you typically submit up-to-date financial information (Form 433‑F or equivalent) showing income, living expenses, and assets. If approved, the IRS suspends collection but the debt remains and interest/penalties usually continue to accrue (IRS, Understanding Collection Alternatives).
Who it helps:
- People with little or no disposable income.
- Taxpayers experiencing temporary crises (serious illness, job loss).
Pros:
- Immediate relief from many collection actions.
- No requirement to make payments while CNC status applies.
Cons:
- CNC is temporary and reviewed; if finances improve, collection can resume.
- Liens and the balance remain on record; interest continues to grow.
Practical tip: CNC buys breathing room. Use that time to secure steady income, reduce expenses, and document the improvement so you can negotiate a payment plan or other permanent solution later.
Penalty relief and administrative remedies
What it is: Penalty abatement or relief is not a reduction of principal tax, but it can lower your overall balance and make other solutions more workable.
Common forms:
- First‑time penalty abatement for failure to file/pay.
- Administrative waivers or appeals for incorrect assessments.
How to pursue: Request abatement through the IRS (by phone or in writing) or via professional representation. Keep documentation (medical records, records of reliance on a tax professional) to support reasonable cause claims (IRS penalty relief guidance).
Pros:
- Low‑cost first step that can reduce total owed.
- Often faster than negotiating an OIC.
Cons:
- Not guaranteed; requires convincing documentation.
Practical tip: Before applying for an OIC, ask whether penalty abatement could reduce the amount owed enough to make a payment plan feasible.
Bankruptcy (Chapter 7 or Chapter 13)
What it is: Bankruptcy can discharge certain tax debts or restructure payments depending on the chapter and whether the tax debts meet eligibility rules.
Key rules (generally applicable): For income taxes to be dischargeable in Chapter 7, the taxes usually must meet these conditions:
- The tax return was due at least 3 years before the bankruptcy filing (including extensions).
- The tax return was filed at least 2 years before the bankruptcy filing.
- The tax was assessed at least 240 days before filing.
- There was no fraud or willful tax evasion (U.S. Bankruptcy Code guidance; see IRS: Tax Information for Bankruptcy).
Pros:
- May eliminate qualifying old income tax debts completely.
- Automatic stay stops most collection actions immediately upon filing.
Cons:
- Not all taxes are dischargeable (e.g., recent income taxes, trust fund taxes, certain penalties).
- Significant effect on credit and public record.
- Requires working with a bankruptcy attorney to evaluate specifics and timing.
Practical tip: If your tax debt is old and uncollectible by other means, consult a bankruptcy attorney early—timing of filing can determine whether taxes are dischargeable.
Authoritative source: IRS guidance on bankruptcy and taxes (IRS, Tax Information for Bankruptcy).
Short-term and hybrid strategies
- Borrowing to pay the IRS: Sometimes a low-interest personal loan or home-equity loan is less expensive than accruing IRS penalties and interest. Assess total cost and default risk.
- Asset sale or refinancing: Selling or refinancing an asset to pay taxes may be preferable to an OIC that requires major documentation and time.
- Partial payments while negotiating: Making partial payments on the balance can improve leverage with the IRS and reduce interest accrual while you pursue other remedies.
How to choose the right path
- Gather financials: Recent pay stubs, bank statements, and a complete budget. Use Form 433‑F or 433‑A as a diagnostic tool even if you don’t submit it immediately (IRS, Form 433‑F).
- Stop and file missing returns: The IRS generally won’t accept an OIC or many alternatives if required returns are unfiled.
- Ask for a Collection Alternatives review: Contact the IRS or a tax pro to evaluate CNC vs. installment vs. PPIA.
- Compare costs: Calculate interest and penalty accrual under a payment plan vs. the cost of bankruptcy or borrowing.
- Document everything: Keep records of communication with the IRS and financial documents supporting hardship claims.
Common mistakes to avoid
- Assuming an OIC is the only path. Many taxpayers can resolve debts faster with a plan or CNC.
- Ignoring filing requirements (unfiled returns often block relief). File late returns promptly.
- Missing payment-plan terms. Defaulting can erase relief and re-trigger aggressive collection.
- Failing to get professional advice when the numbers or rules are close—small timing differences can change whether taxes are dischargeable in bankruptcy.
Real-world examples (anonymized)
- Client A owed $15,000 and had intermittent cash flow. An online installment agreement (Form 9465) with a six‑month ramp solved the immediate collection risk and cost less than applying for an OIC.
- Client B had near‑zero disposable income after medical bills. We secured CNC status, which stopped a pending levy and allowed the family to rebuild income; when circumstances improved we negotiated a PPIA.
Next steps and checklist
- File all required returns immediately if any are missing.
- Run a cash‑flow worksheet and identify realistic monthly payment capacity.
- Consider applying for penalty abatement before or alongside a payment plan.
- If considering bankruptcy, consult a bankruptcy attorney with your tax documents.
- Keep a record of all IRS notices and any calls (date, representative, subject).
Internal resources
- If you want a focused comparison, see our piece on When an Installment Agreement Is Better Than an Offer in Compromise (finhelp.io): https://finhelp.io/glossary/when-an-installment-agreement-is-better-than-an-offer-in-compromise/
- If your OIC was denied or you’re weighing next moves, read Options After a Denied Offer in Compromise: https://finhelp.io/glossary/options-after-a-denied-offer-in-compromise/
- Related: When an Offer in Compromise Is Not the Right Choice: Alternatives to Consider (finhelp.io): https://finhelp.io/glossary/when-an-offer-in-compromise-is-not-the-right-choice-alternatives-to-consider/
Authoritative sources and forms
- IRS — Offer in Compromise: https://www.irs.gov/payments/offer-in-compromise
- IRS — Understanding Collection Alternatives: https://www.irs.gov/businesses/small-businesses-self-employed/understanding-collection-alternatives
- IRS — Online Payment Agreement and Form 9465: https://www.irs.gov/payments/online-payment-agreement-application and https://www.irs.gov/forms-pubs/about-form-9465
- IRS — Form 433‑F (Collection Information Statement): https://www.irs.gov/forms-pubs/about-form-433-f
- IRS — Tax Information for Bankruptcy: https://www.irs.gov/businesses/small-businesses-self-employed/tax-information-for-bankruptcy
Professional disclaimer
This article is educational and reflects general rules and my professional experience. Tax situations are highly fact‑specific—consult a qualified CPA, enrolled agent, or bankruptcy attorney before taking action.
