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The Three Tools of Dealing with a Tax Debt

Whether you owe the IRS or the state of Michigan, you have three tools for dealing with a tax debt if you want to avoid forced collections.  The applications for each differs by government and depends on your personal circumstances.  All three programs will require you to provide to the government your current income and reasonable living expenses. If you are already facing federal collection actions (liens, garnishments, or levies), you may qualify for a Collection Due Process Hearing.  You can still ask for one of the three tools during a CDP Hearing.  

Installment Agreement

An installment agreement is a payment plan.  Interest and penalties continue to accrue while you make payments.  Below are the differences between a installment agreement with the IRS and state of Michigan.

IRS Installment Agreement Resources:

Currently Not Collectible Status

Currently Not Collectible is a status in which the government recognizes that you currently have no resources to pay your tax debt after you pay reasonable living expenses.  While in this status, the government will not take enforcement or collection action against you.  This is a temporary solution because the debt remains, interest continues to accrue, and the government can remove this status in the future. Both governments have a Currently Not Collectible Status (CNC).  Each has different methods and requirements for qualifying.   

Offer in Compromise

An offer in compromise is available when the taxpayer can prove to the government that they will will not be able to pay the tax debt and offers far less than what is owed to settle the debt.  If you have heard the commercials stating, "we will settle your taxes debts for pennies on the dollar," this is the program they are referring to. 

IRS Offer in Compromises

There are several myths about this program that have been purported by for-profit companies:

  • It is a "new program." 
    Truth: this program has been around for decades.

  • You can only settle tax debts that are less than $10,000.
    Truth: companies pick $10,000 because the fees they charge are so high, that most would not bother to pay if they owed less than $10,000.  

  • The IRS is settling tax debts for everybody.
    Truth:  The standard to get an OIC is quite high.  The IRS typically looks at your finances to determine if they could collect on your tax debt in full within 10 years.  If they decide they can, the will not settle the debt.  Some taxpayers are good candidates for an OIC including: people with permanent physical or mental disabilities, elderly who live on Social Security, homeless, and people with advanced diseases like AIDS and cancer.

  • It is a difficult process that justifies fees of thousands of dollars
    Truth:  This is the gravest injustice.  For-profit companies often take advantage of fearful taxpayers.  The OIC program has a very clear and understandable application.  ALL of the information you need to apply COMES DIRECTLY FROM YOU.  Theses companies charge clients thousands to merely organize the information.  Worse yet, if they do a poor job or you get denied, they usually keep the fees.

We are here to assist taxpayers with requesting an offer in compromise.  We do not charge a fee for this service, however, depending on your income, you may have to pay an application fee to the IRS to consider your application.

Learn more about the IRS OIC program

IRS Offers in Compromise (OIC) Resources

State of Michigan Offer in Compromise

The state of Michigan has had the offer in compromise program since 2015.  If the IRS grants your OIC request, the state of Michigan will automatically grant you an OIC for the same tax years and in the same percentage reduction. As crazy as it sounds, some for-profit companies will charge clients a thousand dollars to request something that the state of Michigan is going to grant automatically! 

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