Beginning with offers in compromise accepted on or after Nov. 1, 2021, the IRS will no longer recoup refunds for the calendar year in which the agreement was reached, according to interim guidance dated Oct. 28, 2021. The agency will no longer apply those refunds to outstanding debts for the year, or years, covered by the offer in compromise agreement. To prevent gaming, there is an exception to the new policy for individuals who reach a settlement with the IRS and then subsequently file amended returns seeking a refund for a year not covered by the agreement.
The IRS also made a change to allow certain individuals experiencing financial hardship to seek an offset bypass refund while their offer in compromise agreements are pending. To deliver that type of refund, the agency agrees to circumvent its normal policy of putting that money toward the person’s outstanding tax liabilities.