In an Offer in Compromise, Can the IRS Keep My Refund?
Every dollar counts, especially in this economy! Yes, while an Offer in Compromise is pending and for the year the Offer is accepted, the IRS will keep your refund!
If the IRS keeps your refund, you just increased the total amount paid towards your IRS debt.
Here are the rules: The IRS will keep the refunds in any year in which the Offer is pending. So, if you submit your Offer in late 2020 and it is accepted in early 2022, you will lose the refunds on your 2020, 2021 and 2022 tax returns. When an Offer is accepted, the terms of an Offer in Compromise requires the IRS to keep your tax refund for the year in which the Offer is accepted. This means if your offer is accepted in 2022, the IRS will keep your refund from your 2022 tax return.
This problem is easy to solve: Change your withholdings! Make sure you get a small or no refund. It is important you do not owe! The easiest way to do this is by preparing a mock return using last year’s tax software. Project forward your income and deductions and determine how much you need, that is the amount you want in the system and nothing more.
Should you get help?
I have seen many people try to prepare their own OIC and fail because they do not fully understand the art of dealing with the IRS. Yes, you can submit an Offer in Compromise yourself but if you are trying to considerably reduce your debt, I recommend you rethink your position.
An “accepted” OIC is not the same as a “successful” OIC.
There is more to it. Sure, the average taxpayer can fill out the forms and after spending hours reading and rereading the instructions provide the substantiation needed for an application to be accepted. How do you measure success? To me, success is measured with an approval on the LOWEST DOLLAR AMOUNT the IRS will accept.
If you feel that you may be in over your head, or just want to get a second opinion, let’s set up a short call. To avoid the back and forth emails and phone tag, I have included a link to my Calendar https://calendly.com/taxman/tax-problem-resolution-initial-consultation. Let’s set up a 30 min. phone conference to get to know each other. The phone number to call is 855-829-5877 and my extension is 203.