Quick overview
When the IRS accepts an Offer in Compromise (OIC), it permanently resolves — or reduces — an existing federal tax liability only if you meet the conditions of the agreement. Compliance is not optional: the IRS requires that you file all tax returns and pay all taxes that come due for a specific period after acceptance. Failure to comply can void the OIC and lead to collection actions, penalties, and reinstatement of the original debt (IRS: Offer in Compromise, https://www.irs.gov/individuals/offer-in-compromise).
In my 15+ years helping taxpayers with collection relief, I’ve seen two patterns clearly: taxpayers who build simple systems (calendar reminders, electronic payments, and an annual reconciliation file) maintain compliance easily; those who rely on memory or assume the OIC eliminates future obligations often end up back in collections.
What the IRS requires after an OIC is accepted
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File all required federal tax returns on time for the next five tax years after the acceptance date. The IRS explicitly conditions the OIC on filing tax returns for five years (see Form 656 instructions and the IRS OIC guidance: https://www.irs.gov/individuals/offer-in-compromise).
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Pay all taxes that become due and payable during the compliance period. Even if your OIC settled prior years’ debt, new tax liabilities are not covered unless specifically stated.
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Make all payments called for in the accepted offer. If your offer was a lump-sum offer, the payment schedule must be completed. If you made a periodic payment offer, timely payments are required through the payment period.
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Notify the IRS if your circumstances change materially. Significant income increases, large asset purchases, or other events can affect compliance and may require re-evaluation of the OIC terms.
If you fail any of the required items above, the IRS may treat the OIC as defaulted, rescind acceptance, and attempt to collect the original liability.
Why these rules matter (what can happen if you don’t comply)
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Reinstatement of the original liability: The IRS can reinstate the full amount of the original tax debt plus penalties and interest if the OIC is defaulted.
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Lien/levy actions: If the OIC is voided, past collection protections may end and liens or levies can resume.
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Lost opportunity costs: Defaulting makes it harder to obtain favorable resolution options later; you may also face higher collection fees and additional interest.
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Credit and financial consequences: Although the OIC itself doesn’t directly fix your credit, missing compliance steps that lead to renewed collections or levies can cause severe financial disruption.
Practical compliance checklist (step-by-step)
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Keep the OIC acceptance packet in your records — store one physical copy and one scanned copy. The acceptance letter describes payment terms and compliance obligations.
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Create a calendar system with reminders for: tax return due dates (April 15 and any extended deadlines), quarterly estimated tax payment deadlines (if applicable), and scheduled OIC payments.
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File returns on time every year for five years. If you cannot pay the tax shown on a return, still file on time. Filing protects the OIC; the IRS states filing is a condition regardless of payment ability.
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Pay with electronic methods when possible: IRS Direct Pay, EFTPS, or online payment options provide proof of payment and reduce the risk of missed receipts.
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If self-employed or making estimated payments, calculate quarterly estimates conservatively to avoid underpayment penalties. Keep a copy of calculations and bank transfers.
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Update withholding if you’re an employee: use Form W-4 to increase withholding if your income rises and you’ll owe tax during the compliance period (IRS: Finding the Right Tax Professional and withholding information, https://www.irs.gov/individuals/finding-the-right-tax-professional).
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Monitor IRS correspondence and respond promptly. The IRS sends notices to the address on file; notify the IRS of an address change using Form 8822.
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If you miss a payment or filing deadline, act quickly: file delinquent returns immediately and contact the IRS or a tax professional to discuss options. Prompt action may prevent full reinstatement.
Special situations and how to handle them
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Change in income or assets: If your financial situation improves significantly after acceptance, the IRS can review or reopen collection actions. If you face a positive change, consult a tax professional to evaluate whether you should notify the IRS or consider other options.
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Loss of job, medical emergency, or unexpected hardship: If you cannot meet obligations because of hardship, you may be able to renegotiate or request relief. The IRS may consider financial hardship, but filing and communication remain essential.
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Audit risk: An accepted OIC does not shield you from audits of subsequent returns. Keep documentation for deductions, credits, and income for at least three years (preferably longer) to support returns.
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State tax obligations: An OIC with the IRS does not automatically resolve state tax debts. Contact your state revenue department about similar programs or compliance obligations.
What to do if the IRS says you defaulted
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Request a written explanation: The IRS will issue a notice explaining the default reasons and any restored liability.
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Read the notice carefully for appeal rights: You may be able to request a collection due process (CDP) hearing or file an appeal depending on the circumstances.
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Consider reinstatement negotiation: If the default was due to a reasonable cause (serious illness, natural disaster), provide documentation and ask the IRS to reconsider.
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Seek professional help: Enlist a CPA, enrolled agent, or tax attorney with OIC and collection experience. In many cases I’ve handled, a prompt, documented appeal or negotiation reduced penalties and prevented aggressive collection.
For guidance on reapplying or modifying an existing offer, see our article on how to reapply or modify an OIC: “How to Reapply or Modify an Existing Offer in Compromise” (https://finhelp.io/glossary/how-to-reapply-or-modify-an-existing-offer-in-compromise/).
Recordkeeping template (what to keep each year)
- Copies of all filed federal and state tax returns (electronic or paper)
- Proof of payments (bank statements, EFTPS confirmations, IRS direct-pay receipts)
- W-2s, 1099s, and other income records
- Receipts and documentation for deductions and credits
- OIC acceptance letter and any IRS correspondence
- Notes on conversations with IRS representatives (date, name, callback ID)
Maintain these records in a secure folder (cloud and local backup). Proven documentation is the best defense in audits and default disputes.
Tools and services to simplify compliance
- Electronic filing (e-file) and IRS Online Account for tracking balances and notices.
- EFTPS for scheduled federal payments and proof of payment.
- Tax practice management apps or calendar integrations to automate reminders.
- Professional help: CPAs, enrolled agents, and Low Income Taxpayer Clinics (LITCs) for qualifying taxpayers.
If you want practical help avoiding common application or compliance errors, our guide “Avoiding Common Mistakes on an Offer in Compromise Application” explains recurring pitfalls and how to prevent them (https://finhelp.io/glossary/avoiding-common-mistakes-on-an-offer-in-compromise-application/).
Red flags to avoid
- Assuming the OIC covers future tax years.
- Letting filing deadlines pass because you can’t pay.
- Moving or changing contact info without notifying the IRS.
- Ignoring small notices — many escalate if left unanswered.
When to get professional help
- You miss a return or payment deadline during the compliance period.
- The IRS notifies you of a default or reinstatement.
- Your financial situation changes materially (income increase, inheritance, sale of property).
- You’re facing enforcement (liens, levies, wage garnishments).
In my practice, early engagement with a qualified tax professional frequently prevents a technical default from becoming a full reinstatement and costly collection action.
Bottom line
An accepted OIC is valuable relief, but it comes with clear, enforceable conditions. Protect that relief by filing every year, paying new taxes on time, retaining complete records, and reacting quickly to IRS notices. When in doubt, document everything and consult a qualified tax professional.
Where to learn more
- IRS — Offer in Compromise: https://www.irs.gov/individuals/offer-in-compromise
- Instructions for Form 656 (Offer in Compromise): https://www.irs.gov/forms-pubs/about-form-656
- Our article on the OIC process: “Offer in Compromise Process” (https://finhelp.io/glossary/offer-in-compromise-process/)
Professional disclaimer: This article is educational and does not replace personalized tax advice. Contact a licensed tax professional for guidance specific to your situation.
