Offer in Compromise

Suspension of Collection

When you submit an OIC, the IRS pauses their collection activities. This suspension lasts while your OIC is under review, for 30 days after a rejection, and during any appeal process. This gives you some relief, but remember, the IRS will resume collection if your offer is not accepted.

Offer Terms

If the IRS accepts your OIC, you must comply with all tax laws. They’ll keep any refunds, including interest, from tax returns filed up to the acceptance date. If you fail to meet the terms, the IRS can declare your OIC in default, and you’ll owe the original amount plus interest and penalties. For OICs based on collectability or effective tax administration, you must file all tax returns and pay taxes on time for five years from the acceptance date.

Right to Appeal

If your OIC is rejected, you’ll receive a letter explaining why. This letter also includes instructions on how to appeal. You have 30 days from the letter’s date to file your appeal with the IRS Independent Office of Appeals. Act quickly to contest the decision.

Return of an Offer

Sometimes, the IRS returns your OIC instead of rejecting it. This happens if you didn’t submit all necessary information, filed for bankruptcy, missed the application fee, or haven’t filed required tax returns or paid current tax liabilities. Unlike a rejection, you can’t appeal a returned offer. However, you can fix the issues and resubmit your offer in compromise application.

1. Lengthy Process: The IRS doesn’t rush. On average, it takes them 6 to 9 months to process an Offer in Compromise. Patience is key.
2. Small Settlements: Don’t expect to get off easy. The typical settlement amount is just 14 cents on the dollar. The IRS wants to squeeze as much as they can out of you.
3. Low Acceptance Rate: The IRS isn’t in the habit of saying “yes.” Only 38% of all OIC applications get accepted. They’re looking for any reason to say no.
4. Public Record: If your offer is accepted, it becomes public information. Anyone can look it up, so be prepared for that level of transparency.
5. Time-Consuming: The IRS spends a good chunk of time on each application, anywhere from 10 to 20 hours. They’re thorough and will scrutinize every detail.

District Counsel attorneys provide opinions on OIC’s recommended for acceptance when the total liability, including additions and accrued penalty and interest, is $50,000 or greater. District Counsel Office, when requested, will provide legal opinions for matters related to investigation and processing of offers in compromise.

An Offer in Compromise is effective for the entire assessed liability of tax, penalties, and interest for the years or periods covered by the offer. All questions of tax liability for the years or periods covered by the agreement will be settled. Neither the taxpayer nor the federal government can reopen a compromised tax year or period unless there was falsification of information or documents, concealment of ability to pay and/or assets, or a mutual mistake of a material fact which would be sufficient to set aside or reform a contract.

1. The Internal Revenue Service will not consider an offer that is solely for a tax period or tax year that has not been assessed unless the IRS computer system indicates a return has been received or an assessment is pending. A simple computer check is made to find out if this is so.
2. Taxpayers may submit, and the internal Revenue Service must consider, an offer to compromise taxes due on tax returns which have been filed but have not yet been assessed. However, before the offer can be accepted, the taxes must be assessed.

1. Taxpayers are expected to pay the entire amount offered in as short a time as possible. Acceptable offer terms should be determined by the IRS Agent and should not be limited to the proposal of the taxpayer. The IRS will often look to expand the financial terms of the Offer.
2. The amounts and due dates of payments must be specified.
3. There are three (3) types of payment terms that the Service and the taxpayer may agree to:
   1. Lump Sum Cash — Payable in five or fewer installments from notice of acceptance; must be accompanied by a payment of 20% of the offered amount.
   2. Short Term Periodic Payment — Payable in six or more installments within 2 years from the IRS received date. It must be accompanied with the first proposed installment, and additional installments must be paid in accordance with the taxpayer’s proposed offer terms while the Service evaluates the offer. If an amended offer is secured, the 24-month period begins the date the offer is accepted.
   3. Deferred Periodic Payment — Payable in six or more installments 25 or more months from the IRS received date, but within the time remaining on the statutory period for collection. It must be accompanied with the first proposed installment, and additional installments must be paid in accordance with the taxpayer’s proposed offer terms while the Service evaluates the offer.
4. A taxpayer may designate payments of pre-acceptance to a specific liability including trust fund. Once the offer has been accepted, the funds are applied in the government’s best interest and the taxpayer no longer has the right to designate payments.
5. If an Offer in Compromise is rejected you may file another Offer In Compromise.