The Tax Increase Protection and Reconciliation Act changes the rules for Offers in Compromise (OIC), eliminating the breathing room a taxpayer has while waiting for the IRS to accept or reject an OIC. That is not good news.
Starting with OICs filed on or after July 16, 2006, taxpayers must make a non-refundable payment or the OIC will not be processed. The non-refundable payment amount depends on the type of OIC made. Lump-sum offers must include a 20% “down payment.” Thus an OIC to pay $10,000 cash to settle a tax liability must include a $2,000 payment with the OIC to be considered. If the IRS rejects the OIC, it keeps the cash.
If the OIC is based on periodic payments, the OIC must include the first proposed payment and the taxpayer must keep making payments under the proposed terms of the OIC until the IRS accepts or rejects the OIC. Again, if the IRS rejects the offer, it keeps the cash.