What to Do if the IRS Rejects an Offer in Compromise

An offer in compromise (OIC) is an application that you complete to settle tax debt for less than the full amount. Like any application, the IRS may reject it. If the IRS rejects your OIC, don’t be discouraged — you can reapply or explore alternative relief options.

What’s the Difference Between a Returned and a Rejected Offer in Compromise?

If you receive your application back, the IRS returned your OIC. If you receive a letter, it means the IRS reviewed your OIC and decided to reject it.

The IRS may return an OIC if you are not eligible or did not complete the application correctly. You can return your OIC after resolving any compliance issues. Some other common reasons why the IRS may return your OIC include:

• The IRS determined your offer was to delay debt collections.
• You filed for bankruptcy.
• You chose a payment plan but were still unable to complete payments.
• You have other tax compliance issues.
• You didn’t pay the application fee and do not qualify for a waived fee.
• You accumulated more back taxes while your application was under review.
• You didn’t provide additional information within 14 days of receiving the request.
• You recently submitted a similar offer that the IRS rejected.

The IRS may reject your OIC after they review your application and determine you could pay more than your offer. Some other reasons the IRS may deny an OIC are:

• You have incomplete or inaccurate documentation.
• You are not up to date on filing tax returns.
• You can pay your tax bill in full or complete all monthly payments.

How to Appeal a Rejected Offer in Compromise

If you feel that the rejection of your OIC is incorrect, you can submit a repeal within 30 days. You can submit an appeal through Form 13711. To help you prepare to fill out this form, you need to complete the following:

1. Collect all necessary supporting documents: Provide bank statements, pay stubs or other financial information to clarify your current financial situation.
2. Write a strong statement for your case: Your statement should be short and clearly explain any financial hardships, including medical expenses or other financial obligations that may make it difficult to pay.
3. Seek professional help if you need it: The team at BC Tax has extensive experience with OICs and can be a valuable asset in guiding you through the process.

When to Resubmit an OIC

If you’re unable to appeal your OIC or the IRS rejects your appeal, you can try resubmitting your application. Reapplying can be a viable option, especially if your financial situation is different from when you applied. For example, if your income, expenses or assets have changed or you’ve experienced job loss, reapplying and resubmitting the correct documents can be helpful.

If the IRS rejected your first offer because it was too low, you can reapply and increase the amount to match the IRS’s assessment of your reasonable collection potential (RCP). The RCP estimates how much you can pay based on your income and assets. Do not submit the same offer again, as this can result in a penalty.

Three types of OICs are available — Doubt as to Collectability, Doubt as to Liability and Effective Tax Administration. If your financial circumstances have changed, you may be eligible to apply for a different type of OIC.

What Are Some Alternative Options for Tax Relief?

If you can no longer submit an OIC, you have a wide range of solutions available to manage your tax debt.

Installment Agreement

An installment agreement allows you to pay your tax debt over time in monthly installments, making tax debt repayment more manageable.

Currently Not Collectible (CNC) Status

CNC status halts IRS collection efforts for one year. If your financial situation changes at any point, the IRS will reassess your ability to pay.

Penalty Abatement

The IRS may reduce or waive specific penalties if circumstances like serious illness, natural disaster or other situations beyond your control impacted your ability to pay taxes.

Bankruptcy

Bankruptcy should be your last option and you should only consider it after consulting with a financial professional.

Choose BC Tax for Your Tax Needs

While a rejected or returned OIC can be discouraging, it’s not the end. At BC Tax, we can help you determine your next steps and find a solution that best fits your financial needs. Contact our team to learn more about our OIC services!