You’d be amazed at just how many people try to put off paying their debt to Uncle Sam.
And of course, they don’t have to avoid, avoid, avoid. There are options. And one of those comes in the form of the elusive Offer in Compromise. My clients that become benefactors of this little tax debt reliever can relish the lifting of the debt burden, but that requires some post-action thought.
Something people coming out of tax debt don’t often think about -– and which I find to be critically important — is what happens after they’ve received an IRS tax settlement. And how to keep themselves from coming full circle. (That happens more often than you think.)
Learning from mistakes and changing patterns takes effort.
And that effort starts with these best behavior practices after the dust clears from the IRS tax settlement.
#1: No more federal tax lien. (“Relieved sigh!”)
An accepted compromise requires the IRS to take off that ugly lien from public records.
Your property will be released from liens (including your house). And if you want to purchase a house, the lien will no longer affect you.
Important note: The lien is only released when the settlement is made final after the last payment has been made.
#2: Finders NOT keepers
Here’s the rule prior to November 1, 2021: Any refund to which you are entitled for the year the IRS accepts your offer in compromise will be kept by the IRS.
Let’s say that on May 21, 2021, the IRS gave you notice that your offer in compromise was accepted (yippee). So, you diligently handle your tax obligations for this year, and then 2022 comes around and you find out that you overpaid your 2021 taxes and are entitled to a refund from the IRS.
The IRS will keep that refund and not send it to you.
A condition of almost every accepted offer in compromise is the loss of any tax refunds in any year the offer is pending, up to acceptance. And, sadly, you can’t even apply that refund toward your settlement.
This is only the case for the year in which your offer was accepted. For future years, you WILL be able to get a refund.
So take a look at your withholding now, and adjust things so that you will not overpay your taxes. But don’t be too aggressive, because you also don’t want to be socked with a big bill either.
This rule has changed for any offer accepted after November 1, 2021…..you can keep your refund.
#3: Keep copies of your records.
Once you’ve made that final payment, this is when you will want to preserve documentation of the fact. You know, just in case there’s ever a “problem.”
We can pull a transcript on your behalf (or you could call the IRS yourself — have fun!), and that transcript will authoritatively verify that your lien is released, and you are settled and square with the IRS.
#4: Now is the right time to stay current.
Stay on top of your taxes… at least for a handful of years to come – but also *hopefully* forever.
Let’s face it — you don’t want to hear from an IRS debt collector… ever again. And, believe it or not, they don’t want to see you either.
So, that’s why you must remain compliant with your tax filing and payment obligations for at minimum five years after your compromise has been accepted. The IRS gave you a special deal, and you don’t want to have to play that card again anytime soon.
That’s why the best course of action after your compromise has been accepted is rigid adherence to all of your IRS filing and payment requirements.
It’s tough to do, but doable. I coach my clients all the time, getting them back into good taxpayer status and even getting them to plan for the IRS’s annual tax reporting obligations.
Then the relief of that IRS tax settlement can really, finally sink in.
We’d love to help you get there. Let’s set up a time to discuss your situation:
Ready to lift the burden,