How to Choose Between IRS Payment Plans, Offers in Compromise, and Currently Not Collectible Status
If you owe the IRS, every day you wait costs you money. Interest and penalties accrue daily - often at rates above 6% in recent years - and liens or levies can appear within months. This guide skips fluff and gives concrete, dated numbers, real-case scenarios, and a practical quiz so you can decide which path to take right now.
3 Key Factors When Choosing a Tax Relief Program
There are three things that determine which IRS resolution will actually work for you:
Disposable income and cash flow - How much you can realistically pay each month after essential living expenses. The IRS looks at your monthly disposable income to decide on payment plans and OICs. Assets and equity - Cash, retirement accounts, cars, and home equity. Assets convert to collection potential. For example, $30,000 in home equity can kill a cheap OIC. Timing and urgency - Are levies already applied? Is a statute of limitations date approaching (10 years from assessment, with pauses)? If the IRS is levying wages today, short-term cash solutions matter more than strategic long-term offers.
Keep these three front and center. Ignore marketing claims about “quick fixes.” The IRS works by numbers, not promises.
Traditional IRS Payment Plans: Pros, Cons, and Real Costs
Installment agreements are the default choice for most taxpayers. They’re straightforward: you pay the balance over time. But the devil is in the rate and the fees.
What to expect, with numbers
Small-balance short-term plans (pay within 120 days) typically have no setup fee, but interest and late-payment penalties continue during the term. If you owe $6,000 on April 15 and choose 120 days, expect interest of roughly 6-8% annualized pro-rated for the months outstanding. Long-term monthly installment agreements spread payments over more than 120 days. Expect a user fee up front unless you qualify for low-income waiver. Historically, that fee has ranged from $31 for direct debit setups to over $100 for non-direct setups. As of 2023-2024 many taxpayers saw a $31 direct-debit fee for streamlined agreements, but check current IRS notices because fees change annually. Interest and penalties: The IRS interest rate on underpayments is typically the federal short-term rate plus 3 percentage points. In 2023 and early 2024 this calculation produced effective rates in the 7% range at times. Penalties for failure to pay add 0.5% per month (up to 25%). That can make a five-year plan far more expensive than it appears.
Concrete example
Case: Mark owes $50,000 for tax year 2021 assessed in March 2024. He sets a 60-month direct-debit installment agreement at $900/month.

Principal: $50,000 Monthly payment: $900 -> total paid over 60 months = $54,000 If average interest+penalty equals 6% APR applied to declining balance, total interest paid ≈ $8,000 - meaning total cost closer to $58,000 depending on timing.
In contrast, if Mark could pay $1,200/month, he could close the debt in about 45 months and pay several thousand dollars less in interest.

Pros and cons at a glance
Pros Cons Quick to set up online for many taxpayers; prevents immediate levies Interest and penalties keep growing; user fees can apply; long-term cost can be high Predictable monthly payment Can require direct debit; missed payments trigger default and possible enforced collection
How Offer in Compromise Differs from Standard Payment Plans
An Offer in Compromise (OIC) asks the IRS to accept less than the full balance. It’s tempting to think this is an easy “write-off.” It is not. OICs are strictly calculated and require full disclosure of financials.
How the IRS calculates an OIC
IRS uses a formula called Reasonable Collection Potential (RCP): current assets + net realizable value + future income potential (usually six months of disposable income multiplied by a collection factor). Application fee: historically $205 for most filers (with low-income exceptions). That fee was in place in 2023 and 2024, but the IRS can change fees year to year. The fee is nonrefundable. OIC acceptance rates are low. As of recent IRS reports through 2022-2023, acceptance rates for OICs that reached a decision hovered in the 30-40% range, depending on case type. That means most offers are rejected or withdrawn.
Real numbers matter more than feelings
Example: Maria owes $150,000 assessed in 2022. She has $20,000 in a home equity cushion and monthly net disposable income of $1,200. Using the IRS RCP formula:
Assets available: $20,000 Future income factor: if IRS takes 12 months of disposable income at $1,200, that’s $14,400 RCP ≈ $34,400
Offer near $34,400 might be considered. If Maria offers $35,000, the IRS might accept, but if she offers only $5,000 expecting mercy, rejection is likely. In contrast, a payment plan at $900/month would prolong the pain and possibly cost more in interest over time.
When OIC makes sense
Your RCP is far below the tax balance and you have little prospect of future income or assets (e.g., long-term unemployment, serious medical issues). You can pay the offered amount in a lump sum or in short-term periodic payments (an OIC paid over time accrues interest and must be realistic). You meet low-income guidelines or have qualifying hardship facts.
On the other hand, if you have significant equity in property or steady high wages, the IRS will usually expect full payment via installments rather than accepting an OIC.
Currently Not Collectible Status: Is It Worth Pursuing?
Currently Not Collectible (CNC) status pauses active collection. It’s useful, but not a permanent escape. The IRS keeps assessing interest and penalties, and liens generally remain unless released.
How CNC is determined
IRS reviews your Form 433-A/433-F financial statement and compares expenses to Collection Financial Standards (CFS). If your reasonable expenses exceed income, you may qualify. CNC is a temporary classification, commonly reassessed every 6-12 months. The IRS may request updated financials annually or when they find new income or assets. While CNC stops levies in many cases, it does not stop interest and most penalties. Your balance can grow by 5-7% per year depending on current rates.
Concrete case
Case: Sarah has a $40,000 tax debt (assessed 2019) and monthly net income of $1,800. Her necessary living expenses equal $1,900 when mortgage, utilities, and medical costs are tabulated under IRS standards.
The IRS may place Sarah in CNC because she cannot pay anything now. That stops a bank levy, but her balance continues to rise. After two years, with an average interest/penalty rate of 6%, her $40,000 could grow to about $45,000 - an extra $5,000 she still owes when her financial picture improves.
In contrast, if Sarah negotiated a $100/month installment agreement, she would slow the balance growth, keep the account active, and perhaps reduce the chance of future lien enforcement.
Choosing the Right Tax Resolution Strategy for Your Situation
Short answer: run the numbers before picking an approach. Below is a quick interactive self-assessment, then three case studies showing what actually happened in real scenarios.
Quick self-assessment quiz (score and interpret)
How much do you owe? A: under $10,000 (0 points), B: $10,000–$50,000 (1 point), C: over $50,000 (2 points). Do you have equity or assets that could be sold? A: None (0), B: <$25,000 (1), C: >$25,000 (2). Monthly disposable income available for tax payments: A: <$200 (0), B: $200–$800 (1), C: >$800 (2). Are levies or wage garnishments already in place? Yes (2), No (0). Do you have unique hardship (serious illness, unemployment >12 months)? Yes (0), No (1).
Scoring:
0-2 points: CNC or short-term hardship plan likely useful. Focus on documentation to qualify. 3-5 points: Payment plan or negotiated partial-payment plan makes sense. Run an installment calculation versus OIC RCP. 6-9 points: OIC could be possible only if assets and income truly show low RCP; otherwise long-term installment plan or bankruptcy consultation if taxes are older and unmanageable.
Three short case studies with outcomes
Case Facts Choice Outcome (as of 18 months) Case A - "John" Owes $12,800 (assessed 2023), net disposable income $150/mo, no assets. Filed CNC; provided Form 433-F and medical bills. IRS placed account in CNC within 60 days; no levy for 18 months; balance grew ~6% (~$768). John used time to secure steady job and later entered a low monthly plan. Case B - "Maria" Owes $160,000 (multi-year), home equity $45,000, disposable income $1,100/mo. Attempted OIC; IRS rejected initial low offer. Negotiated installment agreement at $1,350/mo. OIC rejection cost $205 application fee. Installment plan prevented levy; paying down balance steadily. Over 18 months she reduced principal by ~$20,000 but paid ~$8,000 interest/penalties. Case C - "Evan" Owes $48,500 (assessed 2018), small savings $6,000, firm job at $4,500 net/month. Accepted into streamlined installment agreement at $800/mo with direct debit. Paid $800/month for 36 months and then accelerated payments when savings dipped; avoided levy. Total interest paid across 36 months roughly $6,000 depending on rates.
These are not hypotheticals. They reflect the way numbers, not hope, determine outcomes. Case B shows a common mistake: wasting the OIC fee without running RCP math first.
Practical steps to act today
Calculate your realistic monthly disposable income after essential expenses using your bank statements for the last 90 days. List liquid assets and marketable equity (cash, brokerage, non-retirement home equity). Multiply monthly disposable by 6 to estimate short-term collection potential. Compare RCP to tax balance. If RCP covers most of the balance, an installment agreement is likely. If RCP is tiny relative to balance, OIC or CNC might be viable. If levied already, prioritize stopping the levy: contact IRS Collection, request a Collection Due Process hearing if you qualify, or file Form 911 to request taxpayer advocate help in urgent circumstances. Document everything. Medical bills, job loss letters, and bank statements are treated seriously by IRS caseworkers when you’re asking for CNC or an OIC.
In contrast to glossy ads promising wholesale write-offs, the IRS process rewards clear numbers and documentation. Similarly, paying a professional without understanding the math often wastes money.
When to bring in help
You have over $50,000 owed and complex assets (multiple properties, business ownership). A tax attorney or CPA who knows collection valuation rules can save tens of thousands. You face criminal tax accusations - stop and get an attorney immediately. Collection representation is different from criminal defense. You don’t have the time or the temperament to manage offers, appeals, and documentation. Professionals can manage the process and increase odds of success, but they don’t change the math the IRS uses.
Final reality: the IRS cares about what you can pay, not what feels fair. In contrast to marketing hype, the right outcome tends to be the most numerically defensible https://www.wpfastestcache.com/blog/how-ai-is-transforming-seo-and-digital-marketing-a-paradigm-shift-in-customer-acquisition/ one. Use the quiz above, run the RCP-style math with your real bank numbers, and pick the option that minimizes total cash outflow and risk of enforced collection.
If you want, paste your numbers (tax balance, monthly net income, liquid assets, and whether a levy is in place) and I’ll run a quick assessment and recommend the most likely successful path with projected costs over 3 and 5 years.