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Summary of the New IRS Policies for an Offer in Compromise (OIC)

Summary of the New IRS Policies for an Offer in Compromise (OIC)

By Roy Hill, Tax Representative

For those burdened by tax debt, an offer in compromise (OIC) may present some welcome relief. An OIC allows taxpayers to settle their tax debt for less than the full amount owed. The IRS conducts a financial analysis to determine if the taxpayer is offering a sufficient amount that exhibits the most reasonable collection potential. The analysis consists of:

  • Ability to pay
  • Income
  • Expenses, and
  • Asset Equity.

To help taxpayers experiencing hardships, the Taxpayer Advocate Service (TAS) collaborated with the IRS to remove barriers for taxpayers considering the OIC program. My previous employment experience includes working in the IRS Offers program. I helped taxpayers navigate the process of applying for an offer in compromise and guided them through negotiations. The process begins when a taxpayer submits an executed Form 656, Offer in Compromise, for the IRS to consider. The above listed factors are analyzed and negotiations begin. Once the IRS determines that the offer is reasonable it will be officially accepted making it a legal agreement binding the taxpayer and the government to a settlement for an amount less than what is legally owed.

In November 2021, the IRS amended its policies regarding OICs in an effort to eliminate some of the hardships involved with burdensome tax debt. Below are the two main improvements to the policy:

New Policy – IRS Allows Taxpayers with an Accepted OIC to Keep Refunds

For those facing unanticipated hardships in their financial situation, perhaps as a result of the pandemic, inflation or job market instability, losing a tax refund may fuel further hardships and leave the taxpayer unable to meet basic living expenses. Effective November 1, 2021, IRS changed its policy allowing taxpayers to keep their tax refunds once the IRS accepts their OIC.

New Policy – IRS Now Allows Taxpayers to Seek Offset Bypass Refund (OBR) While OIC Pending

For taxpayers who had submitted an OIC, the offset bypass refund (OBR) remedy was unavailable to them, as was the ability to retain refunds shown on their tax returns for the calendar year the IRS accepted the OIC. Under the new procedures the IRS is allowing qualifying taxpayers experiencing financial hardship to seek OBRs while their OICs are pending the IRS’s consideration. These individuals would be able to retain their tax refunds as long as they meet the criteria in the Internal Revenue Manual.

Time is of the essence when requesting an OBR. The request must be received by the IRS prior to the posting date of the offset. To learn more about the benefits of OBRs, the economic hardship requirements and what taxpayers must do to timely request an OBR, contact the tax controversy attorneys at Murray Moyer, PLLC.

I am also available to discuss your situation and can draw from my 30+ years of experience working for the IRS. For many taxpayers, we can find a solution that allows for a fresh start financially and emotionally. Call our office to speak with me or our tax attorneys about your situation.