Once my OIC is accepted, does interest still accrue?
Get Legal Help Today
Secured with SHA-256 Encryption
UPDATED: Feb 20, 2013
It’s all about you. We want to help you make the right legal decisions.
We strive to help you make confident insurance and legal decisions. Finding trusted and reliable insurance quotes and legal advice should be easy. This doesn’t influence our content. Our opinions are our own.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about legal topics and insurance. Our goal is to be an objective, third-party resource for everything legal and insurance related. We update our site regularly, and all content is reviewed by experts.
Yes. Once your Offer in Compromise (OIC) is accepted, interest accrues but the taxpayer’s requirement to pay it is suspended.
What is an Offer in Compromise (OIC)
An offer in compromise (OIC) is an agreement between the Internal Revenue Service (IRS) and the taxpayer in which the IRS agrees to settle the taxpayer’s past due tax liability by accepting an amount that is lower than the total past due amount. For example, if Mary owes $1000 in back taxes, she can ask the IRS to settle for $800. Once the IRS accepts an OIC, interest continues to accrue on the past due amount, but the taxpayer’s obligation to pay the interest is suspended until the amount agreed to in the OIC is paid off in full. If the taxpayer fails to pay the OIC amount in full or defaults on payments, the IRS will then add the accrued interest to the full past due amount. Assume Mary’s OIC to settle her $1000 past due tax liability for $800 is accepted by the IRS and she requests a payment plan of $100 a month to pay off the settlement amount of $800. The IRS will continue to calculate interest on the total amount due, but Mary will not be required to pay that if she continues to make her monthly payments and pays the amount in full.
Consequences of Default on an Offer in Compromise
However, in the earlier example, if Mary were to default on her payments, the entire past due amount would become due plus the accrued interest. Thus is it in her best interest to think carefully about her financial obligations and abilities before agreeing to an Offer in Compromise with the IRS. That money and more (due to the continuously accruing interest on the principal) will always remain due to the government. Thus there is no true default mechanism for Offers in Compromise.