Before you decide to submit an Offer in Compromise, you should be aware of several things:
You’ll have to pay an application fee of $186 and make offer payments (based on the method you choose) with your offer submission, unless you meet certain low income guidelines, which are in the IRS OIC Booklet.
If the IRS rejects your offer, it will not return the application fee or any other payments made with the offer. The IRS will apply these non-refundable fees and payments to your tax liability.
The IRS usually has ten years from the date of assessment to collect a tax debt. However, filing an offer will extend the time the IRS has to collect all of your debt.
While the IRS generally puts other collection activities (such as a levy on your wages or bank account) on hold while your offer is pending, the IRS may still file a Notice of Federal Tax Lien to protect its lien interest in any property you own and to notify other creditors of that interest.
If you’re not current with return filing or tax payment obligations, the IRS may return your offer. File any federal tax returns due before you submit an OIC.
The IRS will keep any refund, including interest, for tax periods extending through the calendar year that the IRS accepts the offer. For example, if your offer is accepted in 2013 and you file your 2013 Form 1040 on April 15, 2014 showing a refund, the IRS will apply your refund to your tax debt. The refund is not considered a payment toward your offer.
The IRS is required to explain how it calculates your ability to pay and how much it could potentially collect from you. You’ll receive correspondence and be able to contact the offer examiner or specialist assigned to you.
If the IRS rejects your offer, you have the right to appeal the rejection, but must do so within 30 days of the date of the rejection letter. To appeal a rejection, use IRS Form 13711, Request for Appeal of Offer in Compromise.
If the IRS accepts your offer, you’ll need to abide by the terms you agreed to, and stay current with filing and paying your taxes for five years after that.
Submitting an offer does not guarantee the IRS will accept your offer. It starts the process of evaluating your situation, your ability to pay, and the amount you are offering. You can submit an offer on taxes owed individually and for your business.
Make sure you don't owe taxes next year
If your offer is accepted but you don’t file and pay all taxes on time for the 5 years after the acceptance, the OIC will terminate and you'll owe your full debt (not the reduced amount of the offer).
Here are some ways to make sure you can pay your taxes:
- Increase your tax withholding from your pay, by filing Form W-4, Employee's Withholding Allowance Certificate, with your employer.
- Increase the amount of estimated taxes you pay.
Learn more about tax withholding: IRS.gov: Tax Withholding