Key Takeaways:
- An Offer in Compromise (OIC) denial doesn’t mean your options are exhausted. You can either appeal the rejection or reapply with a stronger offer.
- The IRS distinguishes between returned offers (procedural issues, no appeal allowed) and rejected offers (evaluated and denied, appeal possible within 30 days).
- Appeals require specific documentation challenging the IRS’s calculations and must be submitted promptly using Form 13711 or a formal protest.
- You can reapply for an OIC at any time, but the IRS expects meaningful changes in your financial circumstances or offer amount for reconsideration.
- Improving your reapplication involves providing accurate, complete financial disclosures, raising your offer closer to the IRS’s Reasonable Collection Potential, and documenting any hardship.
- If an OIC is not viable, alternative IRS solutions include installment agreements, currently not collectible status, penalty abatement, innocent spouse relief, or bankruptcy.
If your Offer in Compromise (OIC) was denied, you might feel like the IRS just closed the door on your best shot at resolving your tax debt for less than you owe. But here’s the good news: a denial doesn’t always mean it’s over. You can reapply for an OIC, and in some cases, you can even appeal the IRS’s decision before starting over. The key is understanding why your offer was denied, how the appeal process works, and what changes you’ll need to make for a successful reapplication. This guide will walk you through every step, from recognizing the type of denial you received to strengthening your new application.
Understanding OIC Denials
Before deciding whether to appeal or reapply, it’s important to know exactly what kind of denial you’ve received. Not all OIC rejections are treated the same way, and the IRS uses specific terminology that can determine your next step.
Returned vs. Rejected Offers
The IRS can return an OIC without even reviewing it if you fail to meet certain procedural requirements. For example, an offer may be returned if you:
- Fail to include the $205 application fee (unless you qualify for a low-income waiver)
- Miss required financial documentation
- Haven’t filed all required tax returns
- Don’t make the initial payment that’s required with your offer
When an offer is returned, you cannot appeal it. Your only option is to fix the issue and submit a brand-new application. Think of this like a college application that never made it to the admissions committee because you forgot to send your transcripts; it wasn’t evaluated, so there’s nothing to appeal.
A rejected offer, on the other hand, means the IRS has reviewed your application but decided your offer doesn’t meet their acceptance criteria. This often happens if:
- Your offer amount is lower than your Reasonable Collection Potential (RCP), which is the IRS’s calculation of your ability to pay
- Your financial disclosures are incomplete or inaccurate
- You’re not current with tax filings or estimated payments
- The IRS believes your future income will allow you to pay more than you offered
When an offer is rejected, you can either appeal or reapply. Which one you choose depends on your specific situation.
Your Right to Appeal a Rejected OIC
An appeal can be your fastest route to reversing a denial without starting from scratch. But it’s a time-sensitive process with strict rules.
Eligibility and Time Constraints
Only rejected OICs (not returned ones) can be appealed. Once you receive your rejection letter, you have 30 days to request an appeal. This deadline is non-negotiable. If you miss it, you’ll need to file a completely new OIC. Appeals are made by submitting Form 13711, Request for Appeal of Offer in Compromise, or by sending a formal written protest that includes all required elements.
Appeal Components and Strategy
To strengthen your appeal, you should include:
- A copy of the rejection letter
- Your name, address, and taxpayer identification number
- The tax periods involved
- A clear statement that you’re appealing the decision
- Specific items you disagree with, along with your reasons
- Supporting documentation that backs up your claims
- Your signature, along with a statement that your appeal is true and correct under penalty of perjury
The most effective appeals target specific errors in the IRS’s reasoning. For example, if the IRS claims you can liquidate an asset for $15,000 but a recent appraisal shows it’s worth only $8,000, submit that appraisal. If they overestimated your monthly disposable income by counting temporary income sources, provide evidence to correct it.
What to Expect in the Appeal Process
When you file an appeal, your case is reviewed by an independent Appeals Officer who was not involved in the initial decision. They may contact you for additional documentation or clarification.
During the appeal:
- Collection actions are paused. The IRS generally won’t levy your assets while your appeal is pending.
- The Appeals Officer may negotiate. Sometimes they’ll suggest a counter-offer instead of a full rejection.
- You’ll receive a written decision either upholding or reversing the original rejection.
If the appeal doesn’t work out, you can still reapply. In this case, at least you’ll have a better understanding of what the IRS wants to see.
Reapplying for a New OIC
Now let’s discuss what happens when you reapply for an OIC.
Is Reapplication Allowed?
Yes, there’s no formal waiting period to reapply after an OIC rejection. However, the IRS will expect to see meaningful changes in your new application. If you simply resubmit the same offer without adjustments, the IRS can reject it immediately as frivolous.
When to Reapply
Reapplication makes sense if:
- Your financial situation has changed. For example, if you’ve lost a job, your income has dropped, or you’ve taken on unavoidable medical expenses, you could reapply.
- Your assets have depreciated. If property values or investments have fallen, your RCP may be lower now.
- You’ve resolved compliance issues, such as filing all past-due returns or making current tax payments.
- You’re approaching the statute of limitations on IRS collections, meaning the IRS may be more willing to compromise.
For example, suppose the IRS rejected your offer last year because you were making $75,000 a year. If you’re now earning $50,000 and have higher living expenses, you may qualify for a lower RCP and have a better chance at approval.
How to Reapply
Reapplying means submitting a new Form 656 along with an updated Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses. You’ll also need to:
- Include the $205 application fee (unless you qualify for a waiver)
- Make the initial payment required for your chosen payment option
- Ensure all tax returns are filed and you’re current on any payment obligations
Even if you previously appealed, your new application must be complete and accurate. Do not assume the IRS will refer back to your prior paperwork.
Improving Your Offer
To make your reapplication stronger:
- Offer closer to your RCP: If the IRS calculated your RCP at $20,000 and you offered $10,000, consider raising your offer to meet or approach that figure.
- Justify a lower RCP: If you can prove the IRS’s calculation was too high, include new documentation. This can include lower asset valuations, proof of unreimbursed medical expenses, or updated pay stubs.
- Show financial hardship: If paying more than your offer would cause undue hardship, document this with bills, receipts, and letters from service providers.
The IRS is more likely to approve an offer when you provide a clear, well-supported case for why the amount you’re offering is truly the most they can collect.
Alternatives When an OIC Isn’t Viable
Even if reapplying isn’t the right move, or if you’re denied again, you still have options to address your tax debt.
Installment Agreement
An installment agreement allows you to pay your tax debt over time. While you’ll still owe the full amount (plus interest), it can make the debt more manageable by breaking it into monthly payments.
Currently Not Collectible (CNC) Status
If your financial situation is so dire that you can’t make any payments, you may qualify for CNC status. This temporarily stops IRS collection activity, though interest and penalties will continue to accrue.
Penalty Abatement
If penalties make up a significant portion of your debt, you might qualify for penalty abatement, especially if you have a reasonable cause such as a serious illness or natural disaster.
Innocent Spouse Relief
If your tax debt stems from your spouse’s (or ex-spouse’s) actions, you may qualify for relief that removes your responsibility for part or all of the debt.
Recommendations and Best Practices
Taking the right steps after an Offer in Compromise denial can make all the difference in your chances of success.
Review the Rejection Carefully
The rejection letter should include details on why your OIC was denied. Look closely at any financial worksheets or asset valuations included. These documents are the IRS’s roadmap for calculating your RCP. Often, they reveal opportunities to challenge or adjust the numbers.
Act Quickly
Whether you’re appealing or reapplying, time is critical. Appeals must be filed within 30 days, and financial circumstances can change, sometimes making your case stronger, sometimes weaker.
Document Everything
IRS decisions often hinge on documentation. Appraisals, medical bills, repair estimates, and income statements can all be decisive in lowering your RCP or proving hardship.
Seek Professional Help
A tax attorney or enrolled agent experienced in OIC cases can spot weaknesses in your application, negotiate with the IRS, and help ensure your offer meets all procedural and financial requirements.
Frequently Asked Questions
What happens if my offer in compromise is rejected?
If your offer in compromise is rejected, you can either file an appeal within 30 days to challenge the IRS’s decision or reapply with a stronger offer and updated financial information.
How many times can I apply for an offer in compromise?
You can apply for an offer in compromise as many times as needed, but each new application should include meaningful changes in your financial situation or offer amount to avoid automatic rejection.
How likely is the IRS to accept an offer in compromise?
The IRS accepts less than half of OICs, typically when the offer reasonably reflects the taxpayer’s ability to pay and is supported by complete financial disclosure and hardship evidence.
What is the IRS Fresh Start Program?
The IRS Fresh Start Program provides tax relief options, including expanded installment agreements and offers in compromise, designed to help struggling taxpayers resolve debts more easily.
What does the IRS look at for an offer in compromise?
The IRS evaluates your Reasonable Collection Potential (RCP) by reviewing your income, expenses, assets, and ability to pay to determine if your offer is the most they can reasonably collect.
Tax Help with OICs
So, can you reapply for an Offer in Compromise after it’s denied? Absolutely. Whether you appeal immediately or reapply later, the key is showing the IRS a stronger case. This is either by correcting errors, providing better documentation, or demonstrating significant changes in your financial situation. A denial doesn’t mean the end of the road. Can you apply for an OIC on your own? You absolutely can, but if you don’t want to leave anything to chance and would rather have an expert handling it for you, it can truly make a difference. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.
If You Need Tax Help, Contact Us Today for a Free Consultation