The Offer in Compromise is a tax settlement proposition by the IRS that has been designed to allow taxpayers unable to pay their tax dues in full to settle their debts by paying only a portion of their dues.
This offer is not “automatic” and taxpayers need to file their offer by filing out and submitting Form 656.
There can be several outcomes when you submit form 656. First, and perhaps most obviously, it can be rejected outright. This may happen for myriad reasons, for instance, even if you’re not using the most up-to-date version of the form. It can also be rejected if you have not adhered to all the filing procedures listed in the form 656, if you have not paid the application fee of $150, or if a bankruptcy case is pending against you, etc.
If the form is accepted, it goes for processing that can take anything from 6 months to a year. However, the IRS has reported that in recent times, the percentage of cases that have been processed within six months has been steadily increasing. After the processing is complete, your offer may be accepted, rejected, or returned.
When your Offer in Compromise (OIC) has been filed, but you have not received a determination from the IRS, the offer is considered to be pending. Until such time as the IRS accepts, rejects, or returns the offer, its status is considered pending.
What do I do in the meantime?
You, as a taxpayer, are entitled to certain benefits during the time your offer is pending with the IRS. For instance, during this entire processing period, you are protected from any kind of IRS enforcement action because the statute of limitations for assessing and collecting tax dues is suspended when an offer is pending or being reviewed. This means that the IRS cannot levy your property when your offer is pending — they also can’t levy your property till 30 days after your Offer has been rejected or while your appeal to reconsider the rejection decision is pending.
Knowing all about an Offer in Compromise when its status is pending saves you many a nail-biting moment and also ensures that you can protect your rights as a taxpayer from any infringement by the IRS.