The IRS accepted my offer in compromise – what should I expect next?
You have a fresh start with the IRS – you received notice that your offer in compromise has been accepted.
The IRS agreed that you could not pay your taxes back, and that a settlement was in everyone’s best interest.
Yes, you are free from the back taxes, but there are still IRS rules and conditions that you must follow going forward. You have come to far to slip now. To make sure your settlement sticks, let’s review what to expect from the IRS after they accept your offer in compromise:
1. Stay current on all of your tax filings and payments for the next five years. You don’t want to hear from an IRS debt collector ever again, and they don’t want to see you, either. You must remain compliant on your tax filing and payment obligations for five years after your compromise has been accepted. This is worth repeating: To prevent your compromise from defaulting, you must file all tax returns on time, and pay all taxes on time. Most likely, you already have solved this, as the IRS looks closely at your ability to stay current before they agree to a settlement. If you run into a problem with your filing or payments in the future, the IRS will usually give you a chance to correct it. They should send you a letter before taking action to default your settlement, and give you an opportunity to file any late returns or pay any new balances. Like you, the IRS has put a lot of work into giving you a fresh start, and they don’t want to waste the work and default your compromise any more than you do. That being said, the best course of action after your compromise has been accepted is rigid adherence to all of your IRS filing and payment requirements.
2. You do not get to keep your next tax refund. Just settled with the IRS and expecting a big refund? Sorry, won’t happen. Any refund to which you are entitled to for the year the IRS accepts your offer in compromise will be kept by the IRS. Example: On June 1, 2014, the IRS gave you notice that your offer in compromise was accepted (congratulations!). You are doing a great job of paying your taxes in 2014, so great that when you go to file your 2014 tax return in 2015, you find out that you overpaid your taxes and are entitled to a refund from the IRS. The IRS will keep that refund and not send it to you. A condition of the compromise is the loss of any tax refunds in any year the offer is pending, up to acceptance. And no, unfortunately, you cannot have the IRS apply the refund to pay your compromise settlement. Good news: You will get to keep all tax returns for any year after acceptance. Tip: After your offer is accepted, double-check your tax withholding or payments – you may want to adjust it so you put the refund in your pocket now rather than wait for the IRS to keep it from your tax return.
3. Release of Federal tax liens. One of the great benefits of an offer in compromise is release of the Federal tax liens that the IRS filed against you. A compromise requires the IRS to take that nasty lien off your credit report and permit you to improve your credit score. The compromise will also free your property from the lien, including your house. And if you want to purchase a house, that lien can be put in the rear view mirror as the compromise requires the IRS to release it. But bear in mind, the IRS does not release the tax lien until the amount you settled for is paid. In an offer in compromise, the IRS will give you anywhere from 5 to 24 months time to pay the settlement. The time you take impacts when the IRS will release your tax lien – your settlement if final only when the last payment is made, and that is when the IRS files the tax lien release.
4. Get an IRS account transcript showing no you longer owe them any money. After you make the final settlement payment to the IRS, the IRS will put a credit on your account for the debt that you owed – which makes your balance owed zero. The IRS account transcript should also show that they released your from the tax liens. The IRS shares these account transcripts. Call them and request a transcript of your account for the years you settled – it will verify that your compromise was accepted, that you paid the settlement, that your fresh start is internally reflected on the IRS’ books, and that your tax liens have been released.
IRS acceptance of an offer in compromise is a great start to a new beginning. Make sure you take full advantage of that new beginning by knowing the rules to follow after compromise acceptance.