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By Michael S. Anderson of Anderson Tax Law logo for Arizona tax attorney Michael S. Anderson P.C.
  • The Offer in Compromise isn’t over when it’s over

    ber0-005The IRS Offer in Compromise isn’t over when you get the letter approving settlement with the IRS.  Don’t get me wrong, the Offer in Compromise (OIC) can be a great solution for some people with IRS debt. But unlike a chapter 7 or chapter 13 bankruptcy case, an offer in compromise isn’t over when you may think it is, it isn’t even over when have paid the agreed upon amount.

    What?!!!   It isn’t over when it’s over?  No, it isn’t.  Or as Yogi Berra once said, “The future ain’t what it used to be.”

    Unfortunately, IRS rules require that you do a few things to ensure the settlement remains in place.

    TAX FILINGS

    You have to file your tax returns every year for 5 years and you have to file them on time.  Now…if you don’t file them on time, the IRS won’t just pull the rug out from under you.  It will send you a warning letter before it does because it doesn’t want to waste the time and effort it put into the offer either.  But in any event, if your offer in compromise has been paid, you should triple check the calendar each year to make sure you have filed your return.

    TAX PAYMENT

    The corollary to the Tax Filing Requirement is the Tax Payment Requirement.  No longer can you wait until after tax day to figure out how you are going to pay the tax debt for the year.  You must make sure that you are withholding or saving enough throughout the year to guarantee that you won’t have tax bill that you can’t pay when the return is filed.  Again, the IRS won’t just kick you out…it will or should send a letter.  But don’t risk this.  Keep withholding correctly and make sure that you have stored enough money away to pay the difference.

     

    TAX REFUND

    The relief you felt when the offer was accepted will be lessened when the IRS keeps that next tax refund and applies it to the debt.  What?  Yes, even though the amount has been accepted the IRS will and can keep the net tax refund for the year in which the offer was accepted.  Example:  On September 15, 2015 the IRS send you the acceptance letter, in October you file your 2014 return that was on extension and your refund is $3500.00 because you have done such a great job of withholding during the 2014 year.

    A bit of advice: Check to see if you are over-with-holding.

     

    IRS LIEN

    The IRS won’t release that lien until the offer amount is paid in full.  Some people are on payment plans that can last as long as 24 months and under the mistaken impression that the Offer settlement letter will be the IRS’ starting gun for release of that or those liens.  They won’t do it.  You have to pay the offer amount in full.

     

    IRS SURPRISES

    Sometimes the IRS makes mistakes and doesn’t change the books to show a zero balance and it doesn’t release the lien(s).  You will have to follow up after you have made the last payment to ensure these two things have happened.  A good place to start is by looking at the IRS’ account transcript for each year in question and than contact the IRS to follow up on ensuring all is correct.