What's the Difference Between an Offer in Compromise and an Installment Agreement?

If you owe the IRS more than you can pay, two of the main options are an offer in compromise and an installment agreement. An installment agreement lets you pay your full tax debt over time in monthly payments — you'll still owe the full amount plus interest and penalties, but the IRS won't take collection action as long as you keep up with payments. An offer in compromise (OIC) is a settlement where the IRS agrees to accept less than the full amount owed if you can prove you genuinely can't pay the full debt. To qualify for an OIC, the IRS evaluates your income, expenses, and assets to determine your reasonable collection potential — the minimum they'd expect to collect. OICs are approved in only about 40% of cases, so installment agreements are far more common. If you qualify for an OIC, the savings can be substantial, but the application process takes time and requires full compliance with all current filing and payment obligations.