Key Takeaways
- An Offer in Compromise (OIC) isn’t final until you stay compliant for a full five years from the date of acceptance. Missing a future return or underpaying future taxes can void the entire deal.
- If you have a Notice of Federal Tax Lien, it won’t disappear automatically the moment you’re approved. The IRS only releases it after the full settlement amount is paid.
- You must stay current on all future taxes. For business owners, that includes timely and accurate quarterly estimated payments and payroll tax deposits.
- The IRS retains the right to review your finances for five years after an OIC. Sudden, unexplained increases in income that contradict your original application can put the agreement at risk.
If you’ve spent months fighting for an IRS settlement, you already know how rare approval is. What you may not know is that the hardest part isn’t getting approved… it’s staying approved.
As a note: The numbers fluctuate yearly. Historically, the IRS accepted around one in three OIC applications submitted. In 2024, that number declined significantly (to about 21% approval). And while most people understandably focus every ounce of energy on that initial hurdle, here’s the part very few people talk about: Acceptance isn’t the finish line.
It’s the starting line of a new five-year chapter with the IRS that determines whether your settlement becomes permanent or gets pulled out from under you.
If you’re seeking clarity on how IRS settlements work beyond the approval letter, it helps to understand not just the rules, but the mindset for maintaining long-term compliance.
Clients who understand the post-acceptance rules are the ones who keep their fresh start intact.
The real terms of an IRS Settlement
If you’re waiting on an IRS decision (or preparing to submit a settlement request), here’s the truth I tell every client: Getting accepted is hard. Keeping the settlement is easier… but only if you understand the rules.
Let’s break down the three biggest pieces.
1. You must fulfill every term of the agreement
When the IRS accepts an Offer in Compromise or approves an Installment Agreement, the acceptance letter feels like an exhale you’ve been holding for years. But the IRS doesn’t consider the agreement final until you’ve met every obligation.
If you’re approved for an OIC (Doubt as to Collectibility):
The compliance terms are legally binding under Form 656, Section 7. For five years from the date of acceptance, you must:
- Timely file every tax return (including extensions).
- Timely pay every dollar of new tax you owe.
- If you’re a business owner or self-employed, stay current on estimated taxes and all required federal tax deposits.
One missed return or one underpayment defaults the agreement. If that happens, the IRS can reinstate your full original tax debt, including penalties and interest that were previously forgiven. In my experience, this is the most common way taxpayers lose their settlement—and it’s almost always preventable once the rules are understood.
If you’re approved for an Installment Agreement (IA):
- Every payment must be on time and in full.
- The IRS monitors new tax balances—if you incur a new liability, they can terminate the agreement.
Most defaults I see aren’t intentional. They happen because no one helped the taxpayer plan ahead. That’s why we work on your tax withholding, estimated payments, and cash-flow habits before acceptance. Understanding how IRS settlements function long-term helps prevent painful surprises.
2. The IRS doesn’t immediately release its hold on your assets
If you have a Notice of Federal Tax Lien (NFTL) on record, settlement approval does not erase it overnight.
For an Offer in Compromise (OIC): The IRS will release the lien only after the full OIC settlement amount is paid—whether that’s a lump sum or the final payment of your periodic plan.
For an Installment Agreement (IA): The lien generally remains until the original tax debt is paid in full. However, in some cases (most commonly with a Direct Debit Installment Agreement), you may qualify for a Lien Withdrawal earlier. That’s a key distinction between an IA and an OIC.
Once the condition is met (payment in full, or qualification for withdrawal), the IRS has 30 days to issue a Certificate of Release of Federal Tax Lien.
Even though the major credit bureaus no longer include tax liens on consumer credit reports, lenders still review public records. A released lien is far better than an outstanding one when you’re applying for a mortgage, business financing, or refinancing.
And one more practical note: while the IRS handles the filing, you must verify the release was recorded correctly. Don’t assume.
3. You’re building a tax-compliant future, not just clearing the past
The purpose of IRS settlements isn’t just closing the book on old debt. It’s building a tax structure that prevents you from ever falling behind again.
Here’s what I typically work through with my clients right after acceptance (and what you can start thinking about now, even pre-acceptance).
Reviewing withholding or estimated taxes: If you owed in the past, there’s usually a clear reason:
- Under-withholding at work,
- Inconsistent quarterly estimates, or
- Irregular income that wasn’t planned for.
We fix that so you don’t owe again next year. Because owing again can default your settlement.
Building a tax cushion: For business owners, especially, a dedicated tax savings account is game-changing. Every deposit, move a set percentage into that account. Healthy businesses do this as a rule, not an afterthought.
Planning ahead: This is the part of my job I enjoy most. Once we get you out of crisis mode, we can start being proactive with strategy around deductions, entity structure, bookkeeping habits, retirement planning, and long-term tax efficiency.
A settlement gives you a fresh start. Planning keeps it fresh.
Final thoughts
The rules for post-acceptance compliance are strict, but they’re also straightforward. My role is to make sure you not only get the settlement but also set up the systems that help you keep it for the next five years and beyond.
Understanding these expectations ahead of time is the difference between a temporary reprieve and a permanent resolution. And for anyone considering IRS settlements, knowing what comes after approval is just as important as getting approved in the first place.
If you’re unsure how these rules might apply to your situation, we can walk through it together before any deadlines—or opportunities—are missed.
FAQs
“Does the IRS monitor my finances after my OIC is accepted?”
Yes. Under the terms of the OIC contract (Form 656), the IRS can review your financials for five years. They’re looking for unreported income or material changes that contradict your original application. This includes undisclosed assets or a dramatic, unexplained increase in income or net worth. It’s not constant monitoring—but discrepancies can trigger problems.
“What if I owe taxes again during the five-year compliance period?”
For an OIC, owing again can void your entire settlement. For Installment Agreements, it can terminate your payment plan. This is why we adjust your withholding or quarterly payments before acceptance.
“Can the IRS reverse or default my settlement later?”
Yes. An OIC can be reversed if you: miss a return or fail to make OIC payments, underpay new taxes, or had inaccurate or fraudulent information in your application.
“How long does it take for a tax lien to come off my record?”
The IRS has 30 days after the debt is fully paid (for an OIC) or satisfied/withdrawn (for an IA) to file a lien release. Always verify the release is properly recorded with your county or state.
“What if my income increases after acceptance?”
A normal increase won’t undo your settlement. The IRS expects financial improvement. But undisclosed assets, dramatic unreported income, or inconsistencies with your OIC paperwork can raise questions and potentially default the offer.
“What happens if I can’t make a payment under an Installment Agreement?”
Call immediately, before the payment is missed. The IRS is far more flexible when you’re proactive than when they discover a missed payment on their own.