Want to File an IRS Offer in Compromise? Fourth, Compliance & The Waiting Game
February 23, 2017
Can I settle my tax debt for less that what I owe? (Part IV)
This post is the fourth of five posts on filing an IRS Offer in Compromise.
Picking up where we left off from our last post, the offer in compromise was submitted and acknowledged by the IRS. While some applicants can sit back and wait for contact, many will have to remain compliant to make sure the offer is actually evaluated.
When a taxpayer reaches the point where an offer in compromise is filed, there is an expectation that the taxpayer is now able to remain compliant. Compliance means preventing new tax liabilities from accruing. In plain speak, that taxpayer is now expected to file and pay in full each April. Also, if a taxpayer is required to make quarterly estimated tax payments, those will need to be paid on time as well. If the taxpayer is unsure whether or not estimated payments are required, they should review their last filed tax return as most tax return software will include estimated payment vouchers if the requirement kicks in.
Failure to remain compliant may result in an offer being returned to the taxpayer. A returned offer is treated as if the offer in compromise never took place and there are no appeal rights. The IRS may offer a 30-day window to explain compliance shortcomings, but it is not an opportunity to cure and continue the offer in compromise process. If your explanation is acceptable to the IRS examiner, they may reinstate the case, but it is entirely up to their discretion.
A returned offer can be particularly devastating because it requires the taxpayer to restart the entire offer process and waiting period.
Realistic Waiting Periods
The IRS separates individual tax offers into two categories – regular wage earners and the self-employed. Offers submitted by regular wage earners will be evaluated by the examiners located in Holtsville, NY. When the taxpayer receives their acknowledgment letter, they can be fairly certain that either the examiner will call them right around the date listed in the letter. There are instances when the IRS requires more time, but you will be informed by mail.
For offers where self-employment income is present, the taxpayer will likely receive notice that their offer was sent to a field office outside Holtsville, NY. These offers take longer for the IRS examiner to evaluate, so there is no strict timeline for response. Our office has routinely seen offers take 12-16 months. Please note that for self-employed offers, there is little room for compliance error as it is closely monitored. Compliance errors will result in your offer being returned, which is a way for the IRS to keep applications moving through the pipeline.
It is natural for a taxpayer who has submitted an offer in compromise to feel anxious or frustrated given the amount of time that passes between the submission of the offer and response by the IRS. The important thing to remember that so long as the IRS has acknowledged your offer application, they will get back with you and collections are on hold while you wait.