Quick Answer: The IRS offers four paths for a balance you can’t pay in full: an Offer in Compromise to settle for less, an Installment Agreement to pay over time, a Partial Pay Installment Agreement for larger balances, and Currently Not Collectible status during hardship. The IRS accepted only 14.1% of Offers in Compromise in FY2025, so picking the right program matters.
Taxpayers who owe the IRS money almost always ask the same first question: can I settle this for less than I owe? The honest answer is that it depends heavily on your specific finances, and treating an Offer in Compromise as the default plan — the way many national ad campaigns imply — sets most taxpayers up for a rejection that costs them months of waiting for nothing.
Offer in Compromise: The Real Odds in 2026
An Offer in Compromise (OIC) lets a qualifying taxpayer settle a tax debt for less than the full balance, based on Reasonable Collection Potential — a formula weighing your assets and future income, not simply how much you owe. According to the IRS’s own FY2025 Data Book, taxpayers submitted 38,797 offers and the IRS accepted 5,464 of them, for a combined accepted value of $98.1 million — an acceptance rate of roughly 14.1%, continuing a decline from about 21% in FY2024 and over 40% in FY2023. An OIC still works well for taxpayers with genuinely limited assets and income, but it is not the universal solution the acceptance-rate trend might suggest it once was.
Installment Agreements: Form 9465 and PPIA
A streamlined Installment Agreement, requested with Form 9465, lets a taxpayer pay a balance over time, typically without a full financial disclosure if the balance is under a set threshold. For larger balances that can’t realistically be paid off before the Collection Statute Expiration Date (CSED), a Partial Pay Installment Agreement (PPIA) sets a monthly payment based on actual ability to pay, even when that payment won’t fully satisfy the debt before the statute runs out. The two are often confused, but a standard installment agreement assumes full repayment; a PPIA does not.
Currently Not Collectible: Pausing Collection Entirely
Currently Not Collectible (CNC) status is not a settlement — it’s an IRS determination that a taxpayer’s necessary living expenses currently exceed their income, and collection activity is paused as a result. Interest continues accruing during CNC status, and the IRS periodically reviews the taxpayer’s financial situation, but no levies or garnishments occur while it remains active. For taxpayers facing real hardship, CNC status is often the fastest form of relief available, requiring a financial disclosure rather than a lengthy offer review.
First-Time Penalty Abatement: The Fastest Win Most Taxpayers Skip
First-Time Penalty Abatement (FTA) removes failure-to-file, failure-to-pay, or failure-to-deposit penalties for taxpayers with three consecutive prior years of clean compliance. It doesn’t touch the underlying tax, but on a balance where penalties make up a large share of what’s owed, FTA can meaningfully shrink the total before any other strategy is even considered — and unlike an OIC, it requires no financial disclosure at all.
Comparing the Four Paths
|
Program |
Best For |
Real 2026 Odds/Effect |
Requires Financial Disclosure? |
|
Offer in Compromise (Form 656) |
Very limited assets and income |
~14.1% accepted (FY2025 IRS Data Book) |
Yes, full Form 433-A(OIC) |
|
Installment Agreement (Form 9465) |
Can pay in full before CSED |
Standard approval for qualifying balances |
Often no, under set thresholds |
|
Partial Pay Installment Agreement |
Larger balance, limited ability to pay |
Approved based on actual finances |
Yes |
|
Currently Not Collectible |
Genuine current hardship |
Pauses levies/garnishment; interest continues |
Yes |
|
First-Time Penalty Abatement |
Three prior clean years |
Removes penalties only, not tax owed |
No |
A Case We’ve Seen Before
A taxpayer came to us convinced an Offer in Compromise was his only option, having seen ads promising settlements for “pennies on the dollar.” A full financial review showed his Reasonable Collection Potential was well above what an OIC would realistically settle for, but he qualified cleanly for First-Time Penalty Abatement and a standard installment agreement — resolving his case faster, and without the months-long OIC review process that his actual numbers were unlikely to survive.
Frequently Asked Questions
Q: Can I really settle my IRS debt for less than I owe?
Sometimes, through an Offer in Compromise, but the FY2025 acceptance rate was only about 14.1%, and it depends entirely on your Reasonable Collection Potential, not on the size of your debt. A pre-qualification review before submitting is the only way to know if it’s realistic for your specific situation.
Q: What’s the difference between a regular installment agreement and a Partial Pay Installment Agreement?
A standard installment agreement assumes the full balance will eventually be paid off. A PPIA sets a payment based on what you can actually afford, even when that amount won’t fully repay the debt before the Collection Statute Expiration Date runs out.
Q: Does Currently Not Collectible status make my tax debt go away?
No. It pauses active collection — no levies or garnishments — while genuine hardship continues, but interest keeps accruing and the IRS periodically reviews your finances to confirm the hardship still exists.
Q: Do I have to prove hardship to get penalties removed?
Not for First-Time Penalty Abatement. It’s based purely on three consecutive years of clean compliance history, with no financial disclosure required, making it one of the simplest forms of relief to request.
Q: Why did the IRS accept so many fewer Offers in Compromise in 2025 than in previous years?
The IRS’s own FY2025 Data Book shows acceptance fell to roughly 14.1%, continuing a decline from about 21% in FY2024 and over 40% in FY2023. The exact cause hasn’t been officially explained, but it makes a realistic pre-qualification review more important than ever before submitting.
Disclaimer: This blog post is for informational purposes only and does not constitute legal or tax advice. Consult with a qualified tax professional for advice specific to your situation.
Choosing the wrong program can mean paying far more than necessary, or waiting months for a rejection your own numbers predicted from the start. M.A. Rubin CPA, PLLC compares all four paths against your actual financial picture before recommending one. Call (833) 627-8246 or visit RubinTaxRelief.com to find out which option really fits your numbers.
Sources: IRS.gov, Collections, Activities, Penalties and Appeals (Data Book Table 4-1, FY2025); IRS.gov, Offer in Compromise.
Disclaimer: This blog post is for informational purposes only and does not constitute legal or tax advice. Consult with a qualified professional for specific advice regarding your business.
