Offer in Compromise Money Refundable?

Question:

    I filed an offer in compromise last year and recently found out that it was rejected.  I was making monthly payments of $200 for almost one year so I paid in around $2,000.  Can I get a refund of this money?

Answer:

    Thanks so much for your question.  I am asked this quite often.  In the past some or all of the money you paid in for an offer in compromise was refundable if your offer was rejected.  However, in July 2006 new legislation went into effect that did away with this rule.  I guess the IRS got tired of refunding money to people who had never sent them any money before.  The rule now is this: any money that you send to the IRS that is required, such as the $150 filing fee and any required down payment or monthly payment depending on the offer, is non-refundable. However, I have some clients who want to make sure that while they have the money to pay the offer in compromise it gets paid or put aside for the offer in compromise because if they hold on to it, the money will get spent on other things.  If you chose to make a "deposit" over and above the required down payment and marked the payment as a deposit, the amount you paid as a deposit would be refundable to you.

    I don’t normally recommend that my clients make a deposit to the IRS.  I might hold that money in escrow for them if they could not save it themselves, because even if the IRS says the money is refundable, it may take months to get it back.