- Filing an Offer in Compromise, if eligible, is a great way to reduce your debt, but you must meeting the strict guidelines put into place by the IRS to avoid defaulting.
- Part of these strict guidelines is knowing you will not receive a refund in the year you filed the Offer and in the year the Offer was accepted.
- As you will not be receiving your refund, it’s best to adjust your withholdings to ensure less of a refund by increasing your withholding amounts.
Who Can Help?
When it comes to filing an Offer in Compromise, the rules and regulations surrounding submittal and acceptance can be confusing and overwhelming. It’s best to hire a Certified Tax Resolution Specialist as they are experienced in dealing with the IRS and know the rules and where to review the regulations. In addition, the firm you want to hire should have experience in filing Offers and have success with the submittals as well.
In addition, a Tax Resolution Specialist knows how to obtain the best amount for your Offer by knowing how to value your assets, understanding the national standards, and what income should be disallowed on the Offer.
As your Offer in Compromise was accepted, this means the IRS agrees with your financial condition that you are unable to pay your debt in full before your CSED’s run out. Congratulations on submitting an accepted Offer!
Why Don’t You Get to Keep Your Tax Refund?
The IRS rules are they will keep your refund, any payments, and fees while your Offer is in the review process. In addition, they will keep these payments and fees in the year your Offer is accepted.
The language reads as this:
1. While your offer is being evaluated: Your non-refundable payments and fees will be applied to the tax liability, and
2. If your Offer is accepted: Any refunds due within the calendar year in which your offer is accepted will be applied to your tax debt.
The reason they keep these payments is because they have agreed to settle for less than you owe, so they attempt to get as much as they due to the fact they are settling for less.
5 Years of Compliance After Your Offer is Accepted
Once your Offer is accepted, you must be in full compliance over the next five years (tax years). There will be a Tax Examiner assigned to monitor your case throughout these five years, so it’s important to understand what the IRS is requesting.
As obtained from the IRS website under Offer in Compromise FAQ’s, the rules clearly state:
1. Once your offer is accepted, additional tax balances cannot be added to the offer and must be paid in full or the offer will default. Note: Installment agreements are not allowed with new balances.
2. If you fail to meet these terms, the IRS may default the Offer in Compromise and reinstate the entire tax liability, less all payments and credits received.
Additionally, when you submit an Offer, you are agreeing to the following as written in the Internal Revenue Manual Section 5.8.9.5.3
[I/we] agree to file and pay all taxes as required by the Internal Revenue Code for five years, including any extensions, from the date of acceptance of the proposed, revised offer. [I/we] further agree to promptly pay any liabilities assessed after acceptance of this revised offer for tax years ending prior to acceptance that are not otherwise included in the revised offer.
Also, stated in IRM Section 5.19.7.2.19.4
Taxpayers agree, as a term of the offer, to comply with all provisions of the internal revenue laws, including requirements to timely file returns and timely pay taxes for the five year period (Tax Years) beginning with the date of acceptance of this offer and ending through the fifth year (Tax Year), failure to do so is a breach of contract.
Benefits of an Offer in Compromise
Having the IRS keep a refund is not a big deal when looking at the benefits of filing an Offer. As you have adjusted your withholdings to ensure a smaller refund, remember you have come to an agreement with the IRS to settle for less than you owe. The IRS in recent years has only accepted 40% of Offer submitted, so you are one of the 25,000 accepted out of 62,000 who submitted.
- Lump Sum Payment. You must pay 20% of your Offer when you submit your Offer for processing, then pay the rest of the amount in no more than five months.
- Periodic Payment. You agree to make monthly payments in no less than six months, but no longer than 24 months. You must submit your first payment with your Offer, then payments must continue until your Offer is paid in full.
Who Can Help?
When it comes to filing an Offer in Compromise, the rules and regulations surrounding submittal and acceptance can be confusing and overwhelming. It’s best to hire a Certified Tax Resolution Specialist as they are experienced in dealing with the IRS and know the rules and where to review the regulations. In addition, the firm you want to hire should have experience in filing Offers and have success with the submittals as well.
In addition, a Tax Resolution Specialist knows how to obtain the best amount for your Offer by knowing how to value your assets, understanding the national standards, and what income should be disallowed on the Offer.