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By: Rebecca K. Wohltman 

Historically, if the IRS accepts your offer in compromise and you are due a refund in the year your offer in compromise was accepted, the IRS would intercept that refund. The intercepted amount would not apply to your offer payment. (In some circumstances, it would be possible the IRS would take two years of refunds.)

For offers accepted on or after November 1, 2021, the IRS will no longer intercept refunds and apply them to years covered by the offer. You can voluntarily elect to allow the IRS to keep the refund and apply it to the years included in the compromise (though it is unlikely taxpayers would make such an election).

Offer in compromise planning has generally required tax practitioners to work carefully to ensure their clients did not have a large refund that the IRS would intercept. While this planning is still important because you don’t know if the IRS will accept an offer before or after the refund is intercepted, any errors in such calculations may not be as detrimental as they were in the past. At the very least, taxpayers can be assured that once an offer is accepted, if they are due refunds in future years, they will be able to keep those refunds.

Professional Services Disclaimer: Please note that the information presented here is as an educational service, and while it contains information about legal issues, it is not legal advice. No warranty is made regarding the applicability of the information presented to a particular client situation, and the information set forth is not a substitute for original legal research, analysis and drafting for a particular client situation.