What Happens to IRS Collection Activity While an Offer in Compromise Is Pending?

Initial Steps Before Collection Changes

The process begins when a taxpayer submits a complete Offer in Compromise application along with the required $205 fee and initial payment, unless they qualify for the low-income exception. Only individuals can qualify for low-income treatment that waives these upfront costs.

Once the IRS confirms eligibility and begins processing the application, it issues a notification to the taxpayer. At this point, the agency generally suspends most collection activities while it investigates the offer.

Collection Suspension and Timeline

According to the IRS, most collection activities are suspended after an OIC application is accepted for processing. This suspension typically remains in effect during the review period, which can last up to two years from the date the IRS receives the application. The two-year period does not include time spent on any appeal.

If the IRS does not accept or reject the offer within that two-year window, the application is automatically approved. Throughout this entire review timeline, the taxpayer must continue making all required payments associated with the OIC itself.

Republic Tax Relief notes that individuals and businesses facing IRS tax debt often have questions about how pending offers affect their overall situation. The firm offers a free, no-obligation initial consultation to evaluate whether private tax-resolution services might address tax-debt concerns that fall outside or alongside an OIC process.

Payments and Obligations That Continue

Taxpayers must keep making the periodic or lump-sum payments tied to their OIC application. For periodic-payment offers, this means continuing those installments while the IRS reviews the proposal. Payments on any existing installment agreement for the same balance are not required during this time.

Other obligations remain in force. Taxpayers must file all required returns, make current estimated tax payments, and—for employers—stay current on federal tax deposits. Failure to meet these can affect eligibility or lead to rejection of the offer.

Federal Tax Liens During Review

Even with collection activity largely suspended, the IRS may file a notice of federal tax lien while the offer is under consideration. This preserves the government’s interest in the taxpayer’s property. The agency also extends the statutory period for collection during the review.

If the offer is ultimately accepted, the IRS will not release any federal tax liens until the full offer amount has been paid. Taxpayers should understand that a lien filing can affect credit and future borrowing even while collection actions such as levies are paused.

Outcomes After the Review Period

If the IRS accepts the offer, the taxpayer must comply with all terms to keep the compromise in place. If the offer is rejected, any payments made are applied to the tax debt, the application fee is not refunded, and the taxpayer has the right to appeal to the IRS Independent Office of Appeals.