How Has the IRS’s Offer in Compromise Policy Changed?

 Posted on January 31, 2022 in Taxation Law

Taxpayers who owe tax debts to the IRS may have multiple options for addressing these issues. In some cases, a taxpayer may propose an offer in compromise that will allow them to pay less than the total amount owed and resolve their tax liabilities. While certain restrictions have traditionally applied in these cases, some recent policy changes by the IRS may provide benefits for taxpayers who make an offer in compromise. 

Changes to Tax Refund Offsets

In the past, when a taxpayer made an offer in compromise, they would agree that the IRS would be able to offset any tax refund they received for the current year and apply that amount toward their tax debt. For example, if a taxpayer had tax debts from 2017, and they proposed an offer in compromise in 2019, when they filed a tax return for the tax year of 2019, the IRS would be able to offset some or all of the tax refund they were eligible to receive for that year.

Starting on November 1, 2021, the IRS no longer offset tax refunds for the current calendar year after a taxpayer requests an offer in compromise. This means that if a taxpayer requests an offer in compromise in 2022, they will be able to receive a full tax refund after filing their tax return for 2022. However to prevent potential abuse, the IRS may offset refunds in cases where a taxpayer requests and receives an offer in compromise and then files an amended tax return that will allow them to receive an increased refund.

The IRS will also be increasing the availability of offset bypass refunds in certain cases. While the IRS may offset a taxpayer’s tax refund to address a tax liability, taxpayers may request an offset bypass refund to address economic hardship. For example, if a taxpayer expects that the IRS will offset their tax refund, but they can show that they need funds to be able to make a rent payment that will allow them to avoid eviction, they may request that a certain amount of their refund will not be offset. Previously, offset bypass refunds were unavailable to taxpayers who had submitted an offer in compromise. However, a new policy now allows taxpayers to request offset bypass refunds while waiting for a decision on a requested offer in compromise.

Contact Our San Jose, CA Offer in Compromise Attorney

With these new policy changes, taxpayers may have additional options for addressing tax debts and realizing financial benefits. However, it is important for these taxpayers to work with an attorney who understands tax laws and IRS policies. John D. Teter Law Offices can help taxpayers determine the best ways to address tax liabilities, and we can assist with requests for offers in compromise or other types of relief. Contact our San Jose tax debt lawyer at 408-866-1810 to get legal help and representation in these matters.

Sources:

https://www.taxpayeradvocate.irs.gov/news/nta-blog-irs-initiates-new-favorable-offer-in-compromise-policies/

https://www.irs.gov/pub/foia/ig/sbse/sbse-05-1021-0063redacted.pdf