Before you decide to submit an Offer in Compromise (offer), you should be aware of several things:
Submitting an offer doesn't guarantee the IRS will accept your offer. It starts the process of evaluating your situation, your ability to pay, and the amount you're offering. You can submit an offer on taxes owed individually and for your business.
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.
Your offer may not be processable
The IRS will use the criteria below to determine if it can process and investigate your offer. If the offer meets one of the criteria, the IRS won't process your offer and will return it to you. The IRS will send you a letter explaining why it could not process your offer and will return your application fee. Any payments you submitted with your offer will also be returned, except for criteria number seven. If your offer is not processed due to unfiled tax returns, any offer payments will be applied to the amount you owe.
The IRS will not process your offer if:
1. You are currently in bankruptcy.
2. You didn't pay the application fee.
3. You did not pay the required initial payment with your offer.
4. You don't have a balance due.
5. The IRS can’t enforce your tax debts because the time the IRS has to collect has expired.
6. Your case is in the jurisdiction of the Department of Justice.
7. You have past due federal tax returns.
After the IRS processes your offer
If the IRS processes but closes your offer without accepting it, it will not return your application fee or any other payments you made with the offer. The IRS will apply these non-refundable fees and payments to the amount you owe.
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 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. You have the right to appeal any lien or levy collection actions. Please refer to the What are my Rights? section below.
The IRS will keep any refund, including interest, for tax periods extending through the calendar year that the IRS accepts your offer. For example: If the IRS accepted your offer in 2018 and you file your 2018 IRS Form 1040 on April 15, 2019 showing a refund, the IRS will apply your refund to your tax debt. The refund isn't 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
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 IRS's rejection letter. To appeal a rejection, use IRS Form 13711, Request for Appeal of Offer in Compromise.
If the IRS accepts your offer
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.
If the IRS returns your offer
The IRS may return your offer after it is processed, if you don’t timely file your tax returns, make estimated tax payments, properly adjust your tax withholding or make federal tax deposits. In addition, the IRS may return your offer, if your application fee or offer payment is dishonored, or if you don't provide information the IRS requested. If the offer is returned, you won’t be able to an appeal. However, IRS will send you a notice providing you 30 days from the date of the notice to respond to the IRS asking for reconsideration of the decision to return the offer.
Make sure you don't owe taxes next year
If the IRS accepts your offer but you don’t file and pay all taxes on time for the five years after the acceptance, the IRS will notify you your offer is in default and may terminate the offer 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
- New Tax Reform implementation changed the way the IRS calculates your federal tax. The IRS encourages everyone to perform a quick “paycheck checkup” to ensure you have the right amount withheld.
- You may use the IRS withholding calculator to figure your federal income tax and withholding. The withholding calculator is a tool on IRS.gov designed to help you determine how to have the right amount of tax withheld from your paychecks.
- Increase the amount of estimated taxes you pay.