Taxation & Estate Planning

Is there a time limit to an IRS offer in compromise investigation?

By howardlevy

“How long does the IRS usually take to investigate an offer in compromise?” is a great question, and one I am often asked by clients.

The answer is six to twelve months, on average, although it can be longer, depending on the complexity of the case. If an appeal is necessary, add another six months.

But there is a flip side to the often frustrating amount of time it can take the IRS to investigate an offer in compromise.  The IRS does not have forever, and there are ramifications if the IRS takes too long to act on an offer.

If the IRS does not act within two years and notify you of a decision, the offer is automatically deemed accepted.

That’s right – done, at the amount you offered, courtesy of Internal Revenue Code 7122(f).

So, if your offer is sitting in year two of consideration and things are progressing slower than molasses, maybe you want to think twice about the urge to call the IRS and kick it into gear. (If you wait, bear in mind the statute of limitations on collection is tolled while the IRS considers an offer).

Here’s the small print:  The offer is considered accepted only if the IRS does not make a decision on it within two years after it is received.  ”Decision” is defined to nclude the IRS rejecting the offer, returning the offer as not processable, withdrawal of the offer by you, or a failure to make payments under a periodic payment OIC.  If you have had any of these happen, the IRS has acted on the offer and made an decision. Time you spend in appeals from a rejected offer is not counted towards the two year time limit.

I have yet to have an offer accepted this way, although I have been close.  The IRS is more than aware of the timing limitations, and disciplinary considerations likely (and unfortunately) wait for the employee with the offer.  But if an offer is progressing slowly, it is important to know how to manage the clock and that too much time can work in your favor.

Full post as published by IRS and the Law on January 09, 2011 (boomark / email).