IRS Law Blog

The IRS, like us, has been affected by the pandemic. So how should you plan for an offer in compromise during COVID?

At the beginning of the pandemic, the IRS closed its offices, including their offer in compromise units. Unopened mail piled up and filings and cases sat unattended to for months. Now, the IRS is slowly catching up but they remain behind on processing and investigating offer in compromises.

Typically, an offer in compromise decision can take 9-12 months.  But these are not typical times.

Expect your offer in compromise timeline to now exceed more than 12 months, possibly up to 18 months.

The pandemic has caused the IRS to take longer to make decisions on offers in compromise.

Keeping the IRS delays in mind, it is also important to consider if your income has been negatively impacted during the pandemic when approaching an offer in compromise.

The IRS uses your earnings as a primary factor in calculating the amount they will accept in an offer in compromise. The greater your financial hardship, the better your chances are for an offer in compromise acceptance.

When looking at both the IRS delays and your reduced income, four different scenarios could unfold for your offer in compromise:

• Your reduced income remains stable while the compromise is investigated and the IRS uses it to calculate your offer in compromise.
• Your earnings increase while we are waiting for the IRS’ response, they update their records, and the cost to compromise goes up.
• Your earnings increase while we are waiting for the IRS’ response, they do not update their records, and your financial hardship benefits the compromise.
• Your change in income is short-term and the IRS chooses to use your higher earnings from before the pandemic, which could hurt your compromise.

How can you know which scenario will be yours?

It depends on the IRS offer in compromise investigator who is assigned to your case

Many offer investigators will take your offer in compromise as filed, with your COVID income, and not request updated information, while others will be more inquisitive.  We want to work with the IRS investigator to minimize questions and accept your reduced COVID income for the best settlement.

Before the pandemic, the IRS accepted approximately 35% of the offers in compromise they received. Unfortunately, the IRS offer in compromise rules have not become more lenient even in these challenging times. The IRS rules and calculations remain the same. Success will be based on IRS approval of your financial inability to repay them.

The IRS is experiencing delays from the pandemic, taking longer than ever on its offer in compromise investigations. But if your income has been reduced, you can come out of this with an offer in compromise settlement. Understanding how the IRS will respond to your compromise, and anticipating their response, can help get you through these times of hardship.