Reaching an Offer in Compromise (OIC) with the IRS can provide significant relief. You worked hard to get to a more manageable place with your tax debt. But what happens if you miss a payment or filing deadline after your offer has been accepted?
The Consequences of Defaulting on an OIC
The IRS considers your OIC agreement legally binding. If you don’t stick to its terms, here’s what could happen:
- The compromise is revoked, and your original tax debt (minus any payments you’ve already made) is reinstated.
- Penalties and interest that had been set aside are reinstated.
- Any IRS liens previously released can be refiled.
- The IRS regains full collection power, including the right to levy your wages or bank accounts.
- Your initial payment and application fee are not refunded. They’ll be applied to your tax debt instead.
It can feel like you’re sliding backward, but default doesn’t have to mean the end of your progress.
How to Fix a Default Before It’s Final
Before officially terminating your OIC, the IRS typically sends a default notice. It’ll give you time to respond, resolve the issue, and avoid termination. Depending on your situation, you may need to make the missed payment immediately, file overdue tax returns, provide proof of compliance, or request an extension.
What Happens If You Can’t Fix It in Time?
If your OIC is terminated and the IRS won’t reinstate it, you may still have a few paths forward:
- Appeal the decision within 30 days.
- Request a new OIC.
- Consider a Partial Payment Installment Agreement (PPIA) to pay less over time.
- Consider the Currently Not Collectible (CNC) status if you’re temporarily unable to pay at all.
Coming Back from an OIC Default
Missing an OIC payment can be a setback, but it doesn’t have to be a disaster. If you’ve received a default notice or are concerned that you might be close to default, we can help you explore your options, communicate with the IRS, and keep your agreement on track.
Our tax experts at Highland Tax Group can work with you to fix the situation and help prevent future problems. Contact us today to schedule a consultation and discuss re-taking control of your tax debt.