Considering IRS Form 656 - Offer in Compromise (OIC) to payoff taxes

I called the IRS this week to see if there was any way that they would offer me an incentive to pay off my back taxes sooner rather than later. They basically gave me three answers: 1) "Well, no, not really", 2) "You avoid interest by paying sooner", and 3) "We can send the application package for Form 656, Offer in Compromise (OIC), but the distribution center has it on backorder." Oh well. I was hoping that they might knock off some of the interest while I was on the phone.

It turns out there is a whole sub-industry of lawyers and accountants and scam artists to help people develop credible "offers" for Form 656. Sure, you can submit the form yourself, but any mistakes and it gets stamped "not processable" and you are out your $150 non-refundable application fee. If your offer is too skimpy, it gets rejected and you don't get a second offer other than the IRS counter-offer. And if your offer is too high, you are effectively leaving money on the table. In addition to paying that fee with the application (and every time you resubmit it), you also have to submit payment of 20% of the balance due. The key is that you need to convince the IRS that they will be unlikely to recover more money than your offer, even if they attach your assets.

The application must lay out your financial situation in enough detail that the IRS can evaluate your future likelihood of payment. Income, assets, debt, support obligations, everything.

I am still considering this route, but I am leaning away from it. Given my present financial situation, I find it hard to believe that the IRS would be worried about me not paying the entire balance due. Currently I am on an installment plan and haven't missed a payment.

Also, my balance is not so huge that I really need "relief" that badly. Also, I am personally morally offended by people who try to get out of paying their financial obligations if they really can afford it. I went through personal bankruptcy in 2005, but I really was in trouble. How quickly things change.

I am simply debating whether to call the IRS up to get the current balance and then simply pay it all off immediately. I may do that simply to close the book on this chapter of my financial history and to avoid any hassle or effort going forward. My immediate motivation is to remove my installment plan payment from my monthly budget so that I can reliably live on a lower level of income from part-time work.

An alternative is to simply put the cash for the tax balance into a side account and then continue to make installment plan payments on a regular basis from that side account. Finanically that costs me more due to accrued interest being more than interest I can earn in a money market fund, but it has the advantage that I continue to maintain a pile of cash that may come in handy if any unexpected expenses or opportunities arise in the next couple of years.

-- Jack Krupansky