Do Collection Efforts Stop When You Submit an Offer in Compromise?

If you are facing IRS collection actions, the idea of settling through an Offer in Compromise (OIC) may sound like a relief. One of the biggest questions taxpayers ask is whether the IRS will stop collection efforts after an application is filed. The answer is yes, but with some important details you need to know.

What Stops During the Review

When you submit a complete OIC application, the IRS generally pauses active collection efforts. This includes actions such as wage garnishments, bank levies, and property seizures. The pause is in place while the IRS reviews your offer, which can take several months. For many taxpayers, this provides valuable breathing room from aggressive enforcement.

What Does Not Stop

Even though collection actions are paused, your balance does not freeze. Interest and penalties will continue to build on your debt until the IRS makes a decision. In addition, the IRS will keep any future tax refunds you are due while your offer is pending, and those refunds will be applied to your balance. It is important to plan for this so you are not caught off guard when you file your next return.

What Happens If Your Offer Is Rejected or Returned

If your OIC is rejected or returned as incomplete, the protection from collection actions ends. This means the IRS can restart enforcement, including levies and garnishments. You do have the right to appeal a rejection, but it is important to act quickly to avoid collection resuming. Working with a tax professional can help you stay on track during this time.

Staying in Compliance

While your OIC is being considered, the IRS requires you to stay compliant with all tax filing and payment rules. If you miss a filing or fail to pay current taxes, your application may be closed, and collections can start again. Keeping up to date shows the IRS you are serious about resolving your tax debt.

Final Thoughts

Submitting an application for an Offer in Compromise usually stops IRS collection actions while your application is under review. However, interest and penalties keep adding up, and tax refunds will still be taken and applied to your debt. If the IRS rejects or returns your offer, collection efforts can begin again. For the best chance at success, make sure your application is complete, stay current with tax filings, and consider professional help.

If you are thinking about filing an OIC, reach out to us at the Law Office of Steven N. Klitzner so we can guide you through the process. We can help protect your rights, manage the paperwork, and work toward a fair resolution with the IRS.