Offer in Compromise Payment Options: Lump Sum vs. Periodic Plans

An IRS offer in compromise gives you two payment options: a lump sum cash offer, paid in five or fewer installments, or a periodic payment offer, paid monthly over as long as 24 months. The lump sum route asks for 20% of your proposed settlement upfront and usually produces a lower total figure. The periodic route lets you stretch payments out, but you start paying the day you file, and the IRS typically expects a larger total in exchange for the time.

Lump Sum Cash Offer

A lump sum offer is paid in five or fewer installments.¹ The name is slightly misleading. You are not required to send one check for the entire amount; you can propose up to five separate payments to cover the settlement.

When you submit the application, you must include 20% of the proposed offer amount as a deposit. That deposit is non-refundable. If the IRS rejects your offer, it keeps the 20% and applies it to your existing tax balance.

Once the IRS accepts the offer, you pay the remaining balance on the schedule you proposed, up to the five-installment maximum.² This option tends to fit people who can pull together cash quickly, whether by borrowing from family, drawing from savings, or selling an asset. The shorter payment window closes the case faster and keeps the total settlement figure lower than it would be under the periodic alternative.

Periodic Payment Offer

If you cannot assemble a lump sum, the periodic payment option lets you spread the settlement over six or more monthly installments, with the full amount due within 24 months of the date you submit the offer.³ The clock starts at submission, not acceptance. Because IRS review can take many months, a long evaluation eats directly into your payment window.

You begin making monthly payments when you file the application, and those payments continue the entire time the IRS evaluates your proposal.¹ If the IRS accepts the offer, the payments you made during review count toward the settlement total. If the IRS rejects it, those payments are kept and applied to your existing tax balance.⁴ You do not get them back.

Missing a scheduled payment during the review period gives the IRS grounds to treat your offer as withdrawn. There is no built-in cure. If you choose this option, you need to be confident you can sustain the monthly amount for however long the review takes and the balance of the 24-month window after that.

What You Pay Upfront With Your Application

Every OIC application requires a non-refundable $205 processing fee, submitted with Form 656.³ On top of the fee, the required deposit depends on which payment option you select:

Lump sum offer: 20% of the total offer amount, submitted with the application.¹
Periodic payment offer: the first proposed monthly installment, submitted with the application.

One important exception. If you are filing solely on doubt as to liability, meaning you dispute that you actually owe the tax, no application fee or deposit is required. Those offers use a separate form (Form 656-L) and follow different rules.⁵

Low-Income Fee Waiver

If your income is at or below certain thresholds, you qualify for a Low-Income Certification that waives the $205 fee and the required initial deposit. The IRS also will not require any payments from you while it considers the offer. To qualify, your adjusted gross income from your most recently filed return, or your household’s gross monthly income times 12, must fall at or below these amounts for the 48 contiguous states and D.C.:³

1 person: $37,650
2 people: $51,100
3 people: $64,550
4 people: $78,000
5 people: $91,450
Each additional person: add $13,450

Higher thresholds apply in Alaska and Hawaii. To claim the waiver, check the Low-Income Certification box in Section 1 of Form 656.

How Your Payment Option Changes the Minimum Offer

The IRS will not accept an offer for less than your Reasonable Collection Potential, which is the agency’s estimate of what it could realistically collect from you. The RCP has two parts: the equity in your assets (real estate, vehicles, bank accounts, investments) plus your anticipated future income after allowable living expenses.⁶

The future income piece is where your payment option matters most. For a lump sum offer, the IRS typically multiplies your monthly disposable income by 12 and adds that to your asset equity. For a periodic payment offer, the multiplier is 24. That difference means the periodic option usually requires a higher total settlement, which is the price of the longer payment window. If you have the cash to pay quickly, lump sum almost always produces the lower bottom line.

The IRS offers a free online pre-qualifier tool that walks through these calculations and estimates what your offer might need to be under each option.⁷ Running the numbers both ways before you file gives you a concrete comparison instead of a guess.

Comparing the Two Options Side by Side

The practical trade-off comes down to cash on hand versus total cost and time. Lump sum offers close faster, settle for less, and demand a substantial deposit at filing. Periodic offers stretch the payments out but cost more in total, require immediate monthly payments throughout the review, and put every one of those payments at risk if the IRS says no.

Payment timeline: lump sum pays in five or fewer installments after acceptance; periodic pays monthly, with the full balance due within 24 months of submission.
Required with application: lump sum needs 20% of the offer amount; periodic needs the first monthly installment.
Payments during review: lump sum requires none beyond the deposit; periodic requires every scheduled monthly payment.
If the IRS rejects: both the deposit and any periodic payments are kept and applied to your tax debt.
Future income multiplier in the minimum offer: 12 months for lump sum, 24 months for periodic.

What Happens After Acceptance

Both payment options carry the same post-acceptance strings, and they apply regardless of which route you chose.

The IRS keeps any tax refund you are owed for the year the offer is accepted, including interest, and applies it to your overall tax debt. That retained refund does not reduce the settlement amount you still owe under the offer; the two are treated separately.⁴ You also cannot direct an overpayment to the next year’s estimated tax while the offer is active. Offers based solely on doubt as to liability are exempt from this refund rule.

For five years after acceptance, you must file every tax return on time and pay every tax bill in full. If you fall behind on either, the IRS can default the offer, reinstate the original debt minus what you have paid, and add back the penalties and interest that accrued before the offer.⁴ During the five-year window you also cannot request an installment agreement or submit another offer for any tax liability, and any new balance you incur must be paid in full rather than rolled into the existing offer.³

For joint filers, the IRS will not default your side of a joint offer because your spouse or ex-spouse violated the compliance terms, as long as you have held up your end.⁴

Choosing between the two payment options is really a choice between paying less in a hurry and paying more over time. Run your numbers through the pre-qualifier under both scenarios, look honestly at the cash you can produce at filing, and factor in the risk that any periodic payments you make during a long review will not come back if the offer is turned down.

1
Office of the Law Revision Counsel. 26 USC 7122 – Compromises
2
Internal Revenue Service. Offer in Compromise
3
Internal Revenue Service. Form 656-B, Offer in Compromise Booklet
4
Internal Revenue Service. Offer in Compromise – Frequently Asked Questions
5
Internal Revenue Service. Offer in Compromise – Doubt as to Liability
6
Internal Revenue Service. Tax Topic 204 – Offers in Compromise
7
Internal Revenue Service. Offer in Compromise Pre-Qualifier