Offers In Compromise (OIC) Alternatives 

If after careful analysis of your finances, you determine that there a just too many Offer

Bankruptcy- yes you can discharge some taxes in bankruptcy. Usually income taxes and (the non-trust fund portion of) payroll taxes. A competent bankruptcy attorney who is experienced with the dischargability of taxes in bankruptcy should be retained. Do not go to a paralegal just to save money.

Partial payment Installment Agreement (PPIA) - With a partial payment Installment Agreement you make monthly payments on your tax liability over the remaining life of the collection statute. The IRS will expect you to first address any equity in assets much like an Offer in Compromise. After you sell or borrow against any assets to pay towards the tax liability, you make monthly payments. 

You must at least make an attempt to borrow against the asset or produce one or more loan rejection letters. The monthly payment amount is computed the same as the future income component of the Offer in Compromise. A PPIA is actually similar to a deferred payment Offer In Compromise except it does not suspend the collection statute while it is being considered or while you are making the payments. If you just have a few years left on the statute it may be the way to go. The disadvantage is that any liens will not be released until the agreement is over because the collection statute has expired. 

Installment Agreement (I/A)- With an Installment Agreement you make monthly payments until the entire liability is paid. The requirements and computations are usually the same as a PPIA although some expenses not allowed with an OIC or PPIA may be allowed if you can pay the liability within 60 months. Much like a PPIA you will have to attempt to borrow against or liquidate assets before an I/A will be approved. An I/A does not suspend the collection statute. 

Uncollectible status (hardship) - This is where after reviewing Forms 433-A and B, the IRS determines that it would be a hardship for you to make any payments. Keep in mind the IRS idea of a hardship is probably much different from yours. Also, if you qualify for uncollectable status, you would probably qualify for an Offer In Compromise. Uncollectible status does not suspend the collection statute.

The IRS will input into their computer for a taxpayer to be in uncollectable status for a specific period of time such as a year. They may then review the taxpayer’s finances once the taxpayer again enters the collection system. A taxpayer may also be input into the system as uncollectable to come out if their income exceeds a predetermined amount.The tax liability is still owing and accruing interest and penalties under an uncollectible status so it may not be the best option. It could be a viable long term resolution however if you feel your income will always be just enough to pay meager living expenses. In that situation If the IRS puts you in an uncollectiblle status you could simply wait for the statute of limitations to expire.

Innocent Spouse Relief

When you request innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return. Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse). However, you are jointly and individually responsible for any tax, interest, and penalties that do not qualify for relief. The IRS can collect these amounts from either you or your spouse (or former spouse). 

The IRS will figure the tax you are responsible for after you file Form 8857. You are not required to figure this amount. But if you wish, you can figure it yourself. 

You must meet all of the following conditions to qualify for innocent spouse relief. 

1. You filed a joint return which has an understatement of tax due to erroneous items of your spouse (or former spouse). 

2. You establish that at the time you signed the joint return you did not know, and had no reason to know, that there was an understatement of tax. 

3. Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax. 

4. A request for innocent spouse relief will not be granted if the IRS proves that you and your spouse (or former spouse) transferred property to one another as part of a fraudulent scheme. A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, ex-spouse, or business partner. 

Conclusion

Which ever type of IRS debt relief agreement you decide to enter into, it is extremely important that it be done correctly. As previoulsy discussed just blindly submitting an Offer in Compromise on your own can have very undesireable consequences. It is really advisable to hire a qualified tax professonal deal with the IRS for you so that you know things were done right the first time. .