When they first come to see us, some of our clients envision a hideous nightmare world where they have to deal with the IRS every single month, for the rest of their lives. Now, I can’t imagine a fate much worse than that, but the good news is that if your offer is accepted by the IRS, you will not be stuck with them forever.
How Long Does an Offer Take to Pay Down?
The short answer is one to three years, but this answer largely depends on you. There are two broad mechanisms for paying the IRS, a lump sum payment plan and a periodic payment offer. Under the lump sum option, you are expected to pay the entire compromise amount in five payments within five months from the date of acceptance. This plan requires that you pay 20% of the offer amount down as an initial payment (though this requirement is waived if you are low-income). After that initial chunk, you have to pay the amount down in five or fewer payments.
With the periodic payment plan, you will pay the compromise amount in monthly payments for two years starting from the time you submit your offer. With this option, you can prepay a larger down payment and then pay a set amount every month for twenty-three months.
An Example of How the Lump Sum Plan Operates
Say that you are one of our clients, you came in to our office with an $80,000 tax liability and we have just proposed a $3,500 settlement to the IRS. Under the lump-sum plan you do not make a payment until the offer is accepted by the IRS, a process that can take up to a year. Once the IRS has accepted, you would need to pay $700 as an initial payment and then determine how you would like to pay the remaining $2,800. If you were so inclined, you could pay the outstanding balance in one payment. All together, the lump sum plan can take anywhere from one year to two years to complete.
An Example of How the Periodic Payment Plan Operates
The periodic payment scheme is quite a bit different. Under this method of payment, you begin making payments even before your offer has been accepted. Taking the same facts from the previous example, you would begin paying the $3,500 when you submit your offer and then pay every month for the next two years—crossing your fingers that your offer is accepted. All told, this process typically takes two to three years.
If you are facing an offer in compromise, remember that there is light at the end of the tunnel and you will not be dealing with the IRS for the rest of your life.