Many taxpayers believe filing an Offer in Compromise will buy them time. In reality, filing the wrong offer can extend the IRS statute of limitations and increase the likelihood that the IRS ultimately collects the debt.
If the IRS believes you are submitting an Offer in Compromise simply to delay collection action, they will summarily reject or return it without even accepting it for review. Worse, while the offer is pending, the collection statute is extended.
Why an Offer in Compromise Can Extend the IRS Statute of Limitations
These days, an Offer in Compromise can take close to a year just to be reviewed. In many cases, the full process takes a year to a year and a half. On top of that, the IRS adds an additional six months to the statute of limitations. If your offer is rejected after eighteen months, you may have just added two years to the time the IRS has to collect from you.
The Three Ways to File an Offer in Compromise
There are three types of Offer in Compromise filings, but most taxpayers only qualify for one.
Doubt as to Collectability is the most common. This applies when you owe the IRS but can prove through your financial situation that you cannot pay the full amount. If the IRS believes you can pay in full, the offer will not be accepted.
Doubt as to Liability applies when there is a legitimate question about whether the tax is owed. Financial statements are not required. Instead, you must prove that the tax assessment is incorrect. However, if you filed the return yourself and simply did not pay it, this option usually does not apply.
Effective Tax Administration is rarely used. In this category, you must still provide financial statements and prove that requiring full payment would be unfair or inequitable. Only special circumstances typically qualify.
Why Filing the Wrong Offer Can Cost You
Submitting an Offer in Compromise without a strong chance of acceptance is risky. If the offer is weak and ultimately rejected, you have extended the statute of limitations while interest continues to grow.
During that extended period, penalties and interest may increase your balance at a rate of seven to eight percent annually. If you have not been making payments while the offer is under review, your total liability may grow significantly.
The result is simple. You may end up owing more money and giving the IRS more time to collect it.
Before You File an Offer in Compromise
An Offer in Compromise should never be filed haphazardly. It should only be submitted when there is a better than fifty percent chance of acceptance based on your financial situation and the correct category.
Submitting an Offer in Compromise without a strong chance of acceptance can extend the IRS statute of limitations and give the IRS more time to collect your tax debt.
Do not extend the IRS collection clock without understanding the consequences.
How Back Tax Expert Evaluates Offer in Compromise Eligibility
Back Tax Expert evaluates whether you truly qualify, which type of offer applies, and whether filing makes strategic sense. In many cases, avoiding an unnecessary filing can protect the statute of limitations and prevent additional exposure.
Back Tax Expert is based in Vienna, Virginia, and assists taxpayers across the Washington DC metro area and surrounding states. The firm also works with clients nationwide on IRS tax resolution matters, including Offer in Compromise evaluations and negotiations.
Visit https://backtaxexpert.com/ before filing an Offer in Compromise that could give the IRS more time to collect your tax debt.
