My Offer in Compromise Got Rejected, What Are My Options?

Facing rejection of your offer in compromise (OIC) by the IRS can be stressful, especially with looming tax deadlines and financial uncertainties. It’s natural to feel anxious about the implications this rejection might have on your financial situation.

However, it’s important to note that a significant number of OIC applications are rejected. For instance, recent data revealed that in 2021, the IRS accepted only 15,154 out of 49,285 offers submitted.

Despite initial rejection, you have the opportunity to appeal the decision, which increases your chances of eventual success. This second chance allows you to explore alternative options and potentially negotiate a favorable resolution with the IRS.

Understanding Offer In Compromise

An Offer in Compromise (OIC) is a program designed for taxpayers who are unable to pay their taxes in full. It allows you to settle your tax debt for less than the total amount owed. There are various reasons why individuals may seek an OIC, such as unexpected expenses or loss of employment.

Eligibility Requirements for Offer In Compromise

When applying for an Offer in Compromise, eligibility depends on several factors:

Income: Your current income level influences your ability to pay off the tax debt.
Expenses: Your necessary living expenses are considered to determine your financial capability.
Total Tax Debt: The amount you owe to the IRS plays a significant role in eligibility.
Current Tax Returns: Your compliance with filing and paying current taxes is assessed.
Bankruptcy Status/Filings: If you have filed for bankruptcy, it impacts your eligibility.

While it’s possible to complete the required forms for an OIC independently, seeking guidance from a tax adviser is advisable. They can provide expert insights and strategies to increase your chances of a successful application.

Reasons Your Offer In Compromise May Be Rejected

Understanding why an Offer in Compromise (OIC) may be rejected can help you navigate the process more effectively and increase your chances of success.

Income Level

One of the primary reasons for OIC rejection is having income deemed too high by the IRS. This suggests that you can feasibly cover your tax debt through your current earnings or potential earning capacity, even if you are currently unemployed.

Past Tax Compliance Issues

Previous issues with paying taxes on time or filing them accurately can lead to rejection. Demonstrating a consistent history of tax compliance strengthens your case for an OIC.

Inaccurate Financial Information

Errors or inconsistencies in your financial documentation, such as inaccurate asset valuations or incomplete expense records, can result in rejection. It’s crucial to provide thorough and accurate financial details to support your OIC application.

What Happens If Your Offer In Compromise Is Returned?

When submitting an OIC, you may encounter one of three outcomes:

Acceptance: Your offer is accepted, allowing you to settle your tax debt for less than the amount owed.
Rejection: Your offer is denied, giving you 30 days to appeal the decision with additional documentation or corrections.
Return: Your offer is returned due to missing information, failure to pay required fees, unfiled tax returns, or ongoing tax liabilities.

Next Steps After OIC Rejection

If your Offer in Compromise is rejected, it’s essential not to panic. You have options to address your tax debt:

Review Reasons: Understand the reasons for rejection detailed in the IRS notification.
Appeal Process: File a “Request for Appeal of Offer in Compromise” (Form 13711) and prepare an appeal letter within 30 days.
Professional Assistance: Consider seeking guidance from tax relief specialists who can navigate the appeal process and maximize your chances of success.

Navigating an OIC rejection can be daunting, but with proper guidance and understanding, you can pursue alternative solutions effectively. Contacting our tax relief team can provide you with the expertise and support needed to address your tax challenges confidently.