South Carolina Tax Attorney

    Last week we listed the Top 5 Reasons Your Offer in Compromise Won’t Be Accepted, and this week we look at the Top 5 Disadvantages to the Offer in Compromise program. 

1. Having to stay compliant for five years in order for the Offer in compromise to be final.  After getting your taxes settled with an offer in compromise, the IRS makes sure you stay compliant for at least five years.  If you so much as owe one penny for a particular period, you have breached the offer in compromise agreement and the IRS has the right to revoke your offer in compromise and seek the entire tax liability from you.
2. Suspending the Statute of Limitations for the IRS to collect against you.  Many people know that the IRS only has ten years from the date of assessment to collect the taxes from you.  This statute of limitations is suspended, however, when several events happen.  One of those events is an offer in compromise.  What does it mean when the statute of limitations is suspended?  It means that if it has been five years since the IRS assessed the taxes against you, there are five years left for them to collect.  If you file an offer in compromise now and it is being considered for one year, the IRS will still be able to collect against you for five years if your offer in compromise is rejected.
3. After the offer in compromise is accepted, the taxpayer loses their opportunity to further contest the amount of the compromised liability in court.  This one isn’t quite as bad as the others.  If you have an offer in compromise accepted, the you lose the right to contest the original amount they say you owe.  If you have an acceptable offer in compromise accepted by the IRS, then keep your nose clean for five years and don’t worry about this. 
4. The IRS can keep all previous payments. This works against you a couple of ways.  First, when you file an offer in compromise you are required to make a down payment or begin making the monthly payments depending on the type of offer in compromise you submit.  If your offer in compromise is rejected in the long run, the IRS will be able to keep all of the money you paid in during the review of your offer in compromise - IF the payments were required.  I have done a post on what a required offer in compromise payment is before and whether offer in compromise payments are refundable.  The second way this bites the taxpayer is that if you are due a tax refund in the year your offer in compromise is accepted, the IRS keeps that money and it is not credited toward the amount you owe for the offer in compromise, but rather it goes against your past due tax liability.
5. A taxpayer considering bankruptcy may transform some of their compromised tax into non-dischargeable tax.  Filing an offer in compromise may cause a tax liability to become non-dischargeable unless the prescribed time for the taxes having been assessed has expired.  If an offer in compromise is submitted, the normal rules that any taxes assessed within 240 days of filing bankruptcy are non-dischargeable is expanded to 270 days plus the number of days the offer in compromise is pending. 

    While some of the disadvantages may turn out to be big deals down the road if you don’t take care of business after your offer in compromise has been accepted, the benefits to filing an offer in compromise far outweigh the potential disadvantages (at least in my opinion).  To learn more about getting a fresh start with the IRS, check out the rest of the tax resolution and offer in compromise blog.