PRACTICE CORNER FROM THE
IRS Announces 2 Significant Changes to the OIC Program
2. Offset Bypass Refund Relief: The IRS has the statutory authority and discretion to offset refunds when the taxpayer owes any other federal debt or state taxes. However, prior to Nov. 1, 2021, taxpayers who submitted an OIC could not obtain refunds shown on their tax returns for the year the IRS accepted their offer and had no administrative remedy available to them for that. Under the new OIC policy, the IRS will now forgo the refund offset and issue the refund if the taxpayer only owes federal taxes and is experiencing economic hardship through an offset bypass refund (OBR). The new OIC policy enables certain taxpayers to seek the OBR while their OICs are pending before the IRS. The new procedures allow qualifying taxpayers who are experiencing financial hardship to seek an OBR during the pendency of their OIC. These individuals would be able to retain their tax refunds as long as they meet certain criteria as per the Internal Revenue Manual (IRM). These two significant policy changes should cause more taxpayers to take advantage of and qualify for the OIC program. This is great for them and practitioners, too!
Effective Nov. 1, 2021, taxpayers will be allowed to keep their income tax refunds in the year their offer in compromise (OIC) is accepted and enables certain taxpayers to seek offset bypass refunds (OBR) mentioned below, while their OICs are pending. The specifics of the two policy changes are: 1. Tax Refund Offset Relief: The IRS will no longer offset claimed refunds for the calendar year in which the OIC was accepted. They will no longer apply that refund to the outstanding tax liability for the year(s) included in the OIC agreement, Form 656. In other words, the IRS will now forgo taking the post-offer acceptance refund and applying it to the year(s) of the offer acceptance. Prior to Nov. 1, 2021, the IRS kept any refunds, including interest, that taxpayers might be owed for tax periods extending through the calendar year in which the IRS accepted the offer. This could be a game-changer for many taxpayers who are considering submitting an OIC with the IRS. The benefit for the year of OIC acceptance will vary based on the amount of refund.
–Michael Rozbruch
888.670.0303 • 3
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