Submitting an offer in compromise will generally cause the IRS to suspend attempts to collect the tax liability that is the subject of the offer. An offer in compromise becomes pending when it is accepted for processing. The offer remains pending until the IRS accepts, rejects or returns the offer. If a taxpayer appeals a rejection of the offer, the offer is pending until the appeal is resolved.
The date of rejection is important because the statute of limitations on collection is suspended during the time the offer is pending, for 30 days thereafter, and for any period that an appeal is under review.
If an appeal is filed during the 30-day period following notice of the rejection, the levy prohibition is extended during the period that the appeal is pending. If, after the IRS rejects an offer in compromise, the taxpayer, in good faith, makes and submits a revised offer within 30 days after the date of rejection, the IRS will not levy to collect the liability while the revised offer is pending. The IRS is also prohibited from initiating any court action to collect the liability that is the subject of the compromise offer. However, the levy prohibition does not apply if the IRS believes that collection of the liability is in jeopardy.
If the IRS determines that an offer (1) has insufficient information to permit evaluation of whether it should be accepted, (2) was submitted solely to delay collection, or (3) is otherwise unprocessable, then the IRS may levy at any time after it returns the offer to the taxpayer.
Notwithstanding the evaluation and processing of an offer in compromise, the IRS may credit any overpayments made by the taxpayer against a tax liability that is the subject of an offer in compromise. The IRS also may offset such overpayments against other liabilities owed by the taxpayer, such as past-due child support, to the extent that setoffs are permissible.