The two most practical reasons for filing an Offer-in-Compromise (OIC) with IRS are:

  • To prevent further IRS collections from occurring (i.e. wage garnishments, bank accounts, seizures)
  • To limit the amount of out-of-pocket expense to satisfy the tax debt.

See, everyone knows that you can make an offer to IRS to pay a lesser amount. But most do not realize that the OIC is an extremely effective method to stop current or future tax collection enforcement. I felt compelled to provide this tip for tax professionals and the public.

When an OIC is filed, the IRS’s rule book, the Internal Revenue Manual, Section 5.1.1.7.6 states, “The Internal Revenue Code (IRC) prohibits or restricts levy in many instances while certain appeals are pending.” Then, under the IRC Section 6331(k), “No levy while certain offers pending or installment agreement pending or in effect.” This law generally prohibits levy while an OIC is pending, and for 30 days after the rejection of an OIC, along with any period an appeal of the rejection is pending.

This means that the Revenue Officer must summarize his notes, in most cases release any ongoing levies, and release control of the case to the IRS Offer-in-Compromise Unit.

Consider what occurred in a recent case the Bolingbrook (IL) Revenue Officer was procedurally required to release a wage levy. This release allowed the client to meet its upcoming payroll obligation.

Note: Filing an OIC is not a magical or frivolous process. The amount offered is very specifically determinable. The offer must be able to be processed by the government, in other words, it must meet certain qualifications. And the offer should not be filed merely to delay collection action. Otherwise, collections officers may be authorized to disregard the offer.

Note: State tax authorities (such as Illinois Department of Revenue) also have processes similar to the IRS Offer-in-Compromise. And these state-level procedures may be used to prevent state tax collection enforcement. For example, a Temporary Restraining Order (TRO) may be issued to provide someone relief from income garnishment.