An Offer in Compromise (OIC) is an agreement between a taxpayer and the IRS that settles tax debt for less than the full amount owed. However, these agreements come with strict compliance requirements that, if violated, can lead to default.
Worried that a missed payment or late tax return has permanently derailed your OIC? While it’s true that defaulting can undo years of hard work, there’s good news. Many taxpayers are unaware that the IRS has a specific process for reinstating a defaulted OIC. If you’ve received a default notice, prompt action may allow you to restore your settlement.
This blog post will walk you through what you need to know about saving your OIC agreement. Keep reading to know the steps you’ll need to take to improve your chances of success.
Understanding OIC Basics
Before detailing the reinstatement process, it’s important to understand the nature of an OIC. Essentially, an OIC is a formal agreement with the IRS that settles your tax liability for less than the full amount owed, offering a considerable advantage to those with substantial tax debt.
OIC Qualification Requirements
To qualify for an OIC, you must have:
- Filed all required tax returns.
- Received a bill for at least one tax debt included in the offer.
- Made all required estimated tax payments for the current year.
- Made all required federal tax deposits if you own a business with employees
Best Practices to Maintain OIC Compliance
The most effective strategy is to prevent a default from happening in the first place. By following these key practices, you can keep your OIC in good standing and avoid the need for reinstatement:
- File all required tax returns on time.
- Pay all current taxes as they become due.
- Adhere to all payment terms outlined in your OIC agreement.
- Promptly report any significant changes in your financial situation.
- Stay compliant with all OIC requirements for the full compliance period (usually five years).
If you think you might have trouble meeting your OIC obligations, it’s wise to contact the IRS before missing a payment or filing deadline. Proactively communicating with the IRS can sometimes help you avoid default and keep your agreement intact.
Grounds for IRS Acceptance
The IRS may accept an OIC based on three main grounds:
- Doubt as to liability: When there’s a genuine dispute about whether you actually owe the tax.
- Doubt as to collectibility: When you’re unable to pay the full amount owed because your assets and income are less than the full tax liability.
- Effective tax administration: When paying the full amount would create economic hardship or would be unfair due to exceptional circumstances.
Common Reasons for OIC Default
An OIC can be revoked or terminated if you fail to comply with the agreement terms. The most common reasons include →
- Missing payments specified in the OIC agreement
- Not filing required tax returns on time
- Failing to pay current taxes when due
- Providing false information or hiding assets during the OIC application process
| Consequences of Default When an Offer in Compromise (OIC) defaults, the IRS generally sends you a notice to inform you of the default and gives you a chance to resolve the issue that caused it. If you do not address the problem, the IRS will take the following actions: 1. Reinstatement of Tax Liability: The IRS may reinstate your full original tax liability, subtracting any payments you’ve already made under the OIC, and will add interest and penalties to the remaining balance. 2. Reactivation of Tax Liens and Collections: Any tax liens that were previously released could be refiled, and the IRS will resume collection efforts from where they stopped. The consequences of a revoked OIC are serious, which is why it is crucial to know whether and how you can have your OIC reinstated. Taking action quickly may be your best opportunity to retain the benefits of your original agreement. |
The OIC Reinstatement Process: Is It Possible?
Yes, reinstatement of an Offer in Compromise (OIC) is possible in certain situations, but it is not automatic and depends on your individual circumstances. After an OIC defaults, the IRS generally sends you a notice to inform you of the default and gives you an opportunity to address the issue that caused it. Whether your OIC can be reinstated will depend on the specific facts of your case and your ability to resolve the problem that led to the default.
Taking prompt action and addressing the reasons behind the default are essential steps in the reinstatement process. The sooner you respond and correct the underlying problems, the better your chances of having your OIC reinstated and preserving the benefits of your original agreement.
How to Seek Reinstatement of OIC?
- Contact the IRS Promptly: If you believe your OIC was revoked in error or due to a correctable issue, contact the IRS immediately to discuss your options. Request a review of your account transcripts to determine if the proper procedure was followed.
- Appeal or Request Review: If you disagree with the revocation, you may have a short window (often 15 days after a preliminary revocation letter) to appeal or provide additional information to the IRS.
- Cure the Default: If the IRS provides a chance to cure (such as making a missed payment or submitting a missing tax return), act quickly to resolve the issue.
- Reapply if Necessary: If reinstatement is not possible and your financial situation has not changed, you may be able to submit a new OIC application and potentially reach a similar agreement.
Appeal Process if an OIC is Revoked
If the IRS revokes your accepted Offer in Compromise, you have the right to appeal this decision. Upon receiving a preliminary revocation letter from the IRS, you typically have a 15-day window to respond and contest the revocation. It is important to act quickly. If your appeal is accepted, the IRS Independent Office of Appeals will review your case and make an independent determination regarding the revocation.
Alternatives If OIC Reinstatement Isn’t Possible
If your OIC can’t be reinstated, you still have options. You might consider submitting a new OIC application or other tax resolution options.
Submitting a New OIC Application
There is no mandatory waiting period before you can submit a new OIC after your initial offer is rejected. If your financial situation has changed substantially, you are allowed to file a new OIC. However, it’s important not to simply resubmit the same offer without any updates. The IRS may consider a repeated offer without new information to be frivolous and is unlikely to approve it.
Reapplying is especially worthwhile if your financial circumstances have shifted in a way that strengthens your case for an OIC, such as:
- A decrease in your income
- An increase in necessary living expenses
- A reduction in the value of your assets
- Tax debts approaching the expiration of the 10-year collection statute
Other Tax Resolution Options
If a new OIC is not an option, the IRS provides several alternative solutions to help manage your tax debt:
- Installment Agreements
- Currently Not Collectible status
- Bankruptcy (in some cases)
These alternatives can help you avoid aggressive IRS collection actions and provide manageable solutions based on your financial capacity.
Get Expert Advice With Your OIC Reinstatement
While it is possible to have the IRS reinstate an Offer in Compromise, doing so requires swift action and careful attention to detail. The most crucial steps include responding quickly to any default notices, submitting thorough documentation, and directly addressing the reasons for the default.
If you’re facing an OIC default or need assistance with tax resolution strategies, Pelham PLLC can help. Based in Washington, D.C., Pelham PLLC serves clients nationwide and also assists U.S. taxpayers living abroad for work, study, or other purposes. Pelham PLLC can:
- Evaluate your unique situation
- Help you respond to IRS notices promptly
- Advise you on whether reinstatement is possible
- Represent you in negotiations or appeals with the IRS
- Guide you through submitting a new Offer in Compromise or an alternative tax resolution option if needed
Every tax situation is unique. Whether you’re seeking to reinstate an OIC or exploring other tax relief options, professional guidance can make a significant difference in achieving a favorable outcome.
Get in touch today with Pelham PLLC and discover how her experience in tax controversy can help you resolve your OIC and other tax issues.
FAQs
Does the IRS extend the collection period if my OIC defaults?
Yes, the time the OIC was pending is added to the IRS’s collection statute of limitations, giving the IRS more time to collect the debt. If you encounter financial hardship, contact Pelham PLLC immediately to discuss your options.
What happens to the payments I made if my OIC defaults?
Any payments made under the OIC will be applied to your tax debt and are not refundable, even if the OIC defaults. Consider contacting Pelham PLLC for guidance.
If my OIC is not reinstated, can I submit a new offer?
Yes, if your financial situation remains the same or has worsened, you can submit a new Offer in Compromise. Be sure to address any previous compliance issues before reapplying. Pelham PLLC can assist you in resubmitting a new OIC.
Can I appeal an OIC default or revocation?
You may have a short window to appeal or respond to a default notice. Contact the Pelham PLLC immediately if you believe the default is in error and need assistance resolving this tax matter.
What are the most common reasons an OIC defaults?
The most common reasons include failing to file tax returns on time, incurring new tax debts, or being unable to keep up with the agreed-upon OIC payments. Staying compliant with all tax obligations for five years after acceptance is crucial to avoid default. Pelham PLLC is ready to help.
