IRS Offer in Compromise Returned; Should I Keep Paying?
I recently received this question from a visitor:
We filed Ch. 7 Bankruptcy last summer and it was discharged in October. Then, this past Spring, we received a letter form the IRS saying we made an error on our taxes two years ago and owed several thousand after all. We filed to OIC with the IRS and have been making monthly payments as per the regulations. Now, we have received a letter with our returned OIC stating that it is all pending further investigation and our liability has net yet been determined. it also states that they have closed our file. We live in TN. I ahve tried to call the number on the letter, but only get voice mail. IO am trying to find out if we keep paying or not since they said they closed the file. Any idea what’s going on?
Here’s my answer:
Thanks so much for your question. It basically shakes down like this. Before the IRS can negotiate with you about your tax liability through the offer in compromise program, they must know how much tax you owe. If your tax return is under examination (or audit as we like to call it in the real world) then the IRS won’t consider your offer in compromise until the examination has been complete. That is most likely what happened in this case. So, at this point, if you have received written confirmation that your offer in compromise is no longer being considered you are now making voluntary tax payments rather than payments against your offer in compromise.
There is nothing wrong with making voluntary tax payments knowing that it is going against your total tax liability rather than the offer in compromise amount that you submitted. Also keep in mind that while you owe the IRS they are able to take collection action against you (such as a wage levy) for the amount you owe so after the examination is complete you do not want to wait around a long time before you re-submit your offer in compromise or installment agreement request.