My Offer in Compromise was Rejected. Now What?

Key Takeaways 

• An OIC rejection is different from an OIC return. A rejection generally means the IRS reviewed the offer and determined it did not meet the requirements for acceptance, while a returned offer generally means the IRS could not process it. 

• If you disagree with an OIC rejection, you generally have 30 days from the date on the rejection letter to request an appeal using Form 13711 or another written request that contains the required information. 

• Before appealing, review the IRS’s Income/Expense and Asset/Equity tables to identify the specific calculations or information you disagree with. 

• If an appeal is not appropriate, you may be able to submit a new OIC after addressing the reason for the original rejection and updating your financial information. 

• Other options may include an installment agreement, Currently Not Collectible status, or certain forms of penalty relief, depending on your financial situation and tax circumstances. 

• Staying current with tax filing and payment obligations is important when pursuing an OIC or other IRS tax-relief option. 

If your Offer in Compromise (OIC) is rejected by the IRS, it can feel discouraging, but you still have options. Understanding why the offer was rejected and how to proceed can empower you to pursue alternative solutions for addressing your tax debt. Here’s a detailed guide on what to do if your OIC is denied, including appealing the decision, reapplying, and exploring other tax relief options. 

Your next steps generally depend on why the IRS rejected it. You may be able to appeal the decision, submit a revised or new offer when appropriate, or explore alternatives such as an installment agreement or Currently Not Collectible status. The IRS generally gives taxpayers 30 days from the date of an OIC rejection letter to request an appeal. 

OICs: Returns vs. Rejections 

First, it’s important to understand if your offer in compromise was returned or rejected by the IRS. Knowing the difference will help you understand your options. 

OIC Return 

An OIC return happens when the IRS declines to even review the offer due to non-compliance with eligibility requirements or application procedures. A returned OIC can be resubmitted once you resolve the compliance issues. Here are some of the most common reasons for an OIC return: 

• You didn’t pay the application fee and don’t qualify for the low-income fee waiver 

• You recently submitted a similar offer, which was rejected. 

• You filed for bankruptcy 

• You opted for the periodic payment plan but didn’t stay current with monthly payments. 

• The IRS deemed your offer frivolous or intended only to delay collections. 

• You accumulated additional tax debt while your offer was under review. 

• You had other tax compliance issues. 

• You didn’t provide additional information requested by the IRS within 14 days. 

An OIC can also be returned when the taxpayer fails to meet certain filing or payment requirements, does not provide requested information, or otherwise does not meet the requirements for the IRS to process the offer. Unlike a rejected OIC, a returned offer generally does not carry the same right to appeal. However, depending on the reason for the return, the taxpayer may be able to correct the issue and submit another offer or request reconsideration. 

OIC Rejection 

An OIC rejection occurs after the IRS reviews your financial information and determines that your offer does not meet the criteria based on their assessment of your reasonable collection potential. A rejection signifies that the IRS evaluated your case but believes you could pay more than what was offered. Here are some of the most common reasons for an OIC rejection: 

• Your offer was too low, and the IRS believes you can afford to pay more. 

• You have the ability to pay your tax bill in full or make monthly payments.  

The IRS generally considers an OIC based on factors such as your ability to pay, income, expenses, and the equity in your assets. For an OIC based on doubt as to collectability, the IRS generally expects the offer to represent what it can reasonably expect to collect within a reasonable period of time. 

In other words, a rejection does not necessarily mean that you are ineligible for every form of tax relief. It means the specific offer submitted did not meet the IRS’s requirements for acceptance. 

Understand Why Your OIC Was Rejected 

Before moving forward, review the IRS’s reasoning for the rejection. This information can be found in the rejection letter you receive. Common reasons for rejection include: 

• Insufficient Offer Amount: The IRS may believe your offer is too low based on your ability to pay. 

• Incomplete or Incorrect Documentation: Missing forms, inaccurate information, or incomplete financial statements can lead to rejection. 

• Failure to Meet Eligibility Requirements: The IRS has strict requirements for OIC eligibility, including being up to date on filing current tax returns and making any required estimated tax payments. 

Your rejection letter and the financial tables that accompany it are especially important because they show how the IRS evaluated your offer. If you disagree with the IRS’s calculation of your income, allowable expenses, asset values, or other financial information, identify the specific items you believe are incorrect and gather documentation supporting your position. 

Understanding why your OIC was rejected will help you make informed decisions on how to proceed. 

Appeal the OIC Rejection 

If you believe the IRS made an error in rejecting your OIC, you have the right to appeal the decision within 30 days of receiving the rejection notice. This appeal process involves submitting Form 13711, Request for Appeal of Offer in Compromise, and explaining why you disagree with the decision. The IRS states that the 30-day period is measured from the date on the rejection letter, so it is important to review the letter and act promptly. When preparing your appeal, consider the following steps:  

1. Gather Supporting Documentation: Provide additional financial statements or updated information to clarify your financial situation. This could include bank statements, pay stubs, and proof of expenses. 

1. Write a Strong Statement of Your Case: Be clear and concise, explaining why the IRS should reconsider your offer. Highlight any financial hardships, including medical expenses, unexpected income loss, or other financial obligations that limit your ability to pay. 

1. Seek Professional Help if Needed: Tax professionals experienced with OIC appeals can be valuable in guiding you through the appeals process. Their knowledge of IRS requirements and processes can help strengthen your case.  

When appealing, focus on the specific reasons for disagreement rather than simply stating that you cannot afford the IRS’s determination. The IRS recommends identifying the disputed items and providing facts and documentation that support your position. This may include information related to income, expenses, asset values, or special circumstances. 

The IRS Office of Appeals will review your appeal, and if successful, your OIC may be reconsidered. If the appeal is unsuccessful, you still have other avenues to address your tax debt. 

If you submit a timely appeal, certain IRS collection activities are generally suspended while the rejection is being considered by Appeals. However, an appeal does not automatically mean the OIC will be accepted, so you should continue evaluating your other options. 

Reevaluate and Submit a New Offer in Compromise 

If appealing is not an option or the appeal is denied, you can consider submitting a new OIC application. Reapplying is a viable option, particularly if there have been significant changes in your financial situation. If your income, expenses, or assets have changed, update your financial statements and supporting documentation accordingly. This is especially important if you’ve experienced job loss, increased medical bills, or other financial burdens. 

If the IRS rejected your initial OIC because they believed the offer was too low, consider increasing the amount to something closer to the IRS’s assessment of your reasonable collection potential (RCP). The RCP is the IRS’s estimate of how much you can realistically pay based on your income and assets. Avoid resubmitting the same offer without addressing the IRS’s concerns — a repeat offer with no changes is more likely to be rejected again, and in rare cases where the IRS considers a submission frivolous or intended only to delay collection, it can result in a $5,000 penalty. Strengthen your new offer with updated financial details rather than repeating the same numbers. 

Before submitting another OIC, carefully review the IRS’s calculation of your reasonable collection potential and determine whether the information used by the IRS has changed or was inaccurate. The IRS considers the value of assets and anticipated future income, along with certain allowable living expenses, when evaluating reasonable collection potential.

The IRS considers three types of OICs: Doubt as to Collectability, Doubt as to Liability, and Effective Tax Administration. If your circumstances have changed, you may be eligible to apply under a different type of OIC. Submitting a new OIC can be a fresh opportunity if your financial circumstances have shifted or if you’re able to increase the offer. 

However, the type of OIC you submit should match the circumstances of your tax case. Doubt as to Collectability applies when you agree with the amount of tax owed but cannot fully pay it. Doubt as to Liability applies when there is a genuine dispute about whether you owe the tax or how much you owe. Effective Tax Administration may apply in certain situations where the tax is legally owed and collectible but requiring full payment would create an economic hardship or would be unfair and inequitable because of exceptional circumstances. 

If you are considering a new OIC, use the current IRS forms and requirements rather than relying on an older application. The IRS also provides an Offer in Compromise Pre-Qualifier to help taxpayers assess whether they may qualify, although using the tool does not guarantee that an offer will be accepted.

Explore Alternative Tax Relief Options 

If an OIC is no longer feasible, there are alternative options that can help manage your tax debt. 

Installment Agreement 

An Installment Agreement allows you to pay your tax debt in monthly installments over time. If you cannot pay your tax debt in full, an installment plan is often more manageable than a lump-sum payment. You can apply for different types of installment plans, such as partial payment installment agreement. This allows you to pay a reduced amount monthly if you cannot afford the full payment but do not qualify for an OIC. 

The IRS offers several types of payment plans, and eligibility requirements vary depending on factors such as the amount owed and your ability to pay. For example, certain streamlined installment agreements generally allow eligible taxpayers to pay their assessed balance within 72 months, with different requirements applying depending on whether the balance is $25,000 or less or between $25,001 and $50,000. 

A Partial Payment Installment Agreement may also be available when a taxpayer cannot pay the full balance within the IRS’s collection period. The IRS may allow payments that do not fully satisfy the tax liability before the collection period expires, subject to its requirements.

Currently Not Collectible (CNC) Status 

If you’re experiencing financial hardship and cannot afford to make payments, you may qualify for Currently Not Collectible (CNC) Status. CNC temporarily halts IRS collection efforts, including wage garnishments and levies, until your financial situation improves.

Keep in mind that the IRS periodically reviews CNC status — often every one to two years, though timing can vary — so if your financial situation changes, your ability to pay may be reassessed. 

Currently Not Collectible status does not erase your tax liability. If the IRS determines that paying the tax would prevent you from meeting basic living expenses, it may temporarily delay collection while your financial situation is reviewed periodically. Penalties and interest generally continue to accrue during this period. 

Penalty Abatement 

In some cases, the IRS may agree to reduce or waive certain penalties through Penalty Abatement. There are two main paths: First-Time Abatement, which is available if you’ve filed all required returns and had no penalties in the prior three years — no hardship explanation needed — and Reasonable Cause relief, for situations like serious illness, natural disasters, or other circumstances beyond your control that kept you from filing or paying on time. 

Bankruptcy 

While typically considered a last resort, bankruptcy may discharge certain types of tax debts under specific conditions. Taxes eligible for discharge include income tax debt that is at least three years old, filed at least two years prior, and assessed more than 240 days ago. Bankruptcy should only be considered after consulting with a legal or financial professional who can help assess your eligibility and the consequences of filing. 

Bankruptcy rules for tax debt are complex, and not all tax liabilities are dischargeable. For example, the IRS notes that certain income taxes may qualify for discharge only when specific timing and filing requirements are met, while taxes involving fraudulent returns, certain late-filed returns, or willful attempts to evade or defeat tax generally receive different treatment. 

Keep Up with Current Tax Obligations 

One of the most important things you can do while working to resolve a past tax debt is to stay current with all new tax obligations. To remain compliant with IRS requirements, file all required tax returns. Ensure all previous and future tax returns are filed on time. If you are self-employed, make quarterly estimated tax payments to avoid additional debt and penalties. Meeting your current obligations shows the IRS you’re serious about resolving your tax issues, which may make them more receptive to future OICs or other relief options. 

How Optima Tax Relief Can Help with an Offer in Compromise 

If your Offer in Compromise has been rejected, understanding the reason for the rejection is an important first step. Optima Tax Relief can review your tax situation and help determine whether an appeal, a new OIC, or another IRS tax-relief option may be appropriate based on your circumstances. 

Optima Tax Relief’s tax professionals can assist with evaluating financial information, preparing documentation, communicating with the IRS, and pursuing available tax-resolution options. Depending on the circumstances, this may include assistance with an Offer in Compromise, installment agreement, or Currently Not Collectible status. 

Every tax situation is different, and there is no guarantee that an OIC or other resolution option will be accepted. A professional review can help you understand your available options and the requirements involved before deciding how to proceed. 

Frequently Asked Questions About Rejected Offers in Compromise 

What happens if my Offer in Compromise is rejected? 

If the IRS rejects your OIC, you generally have 30 days from the date on the rejection letter to request an appeal. You can also evaluate whether submitting a new OIC or pursuing another tax payment or collection option makes sense for your situation. 

Can I appeal an Offer in Compromise rejection? 

Yes. If the IRS rejects your OIC, you generally have 30 days from the date on the rejection letter to request an appeal. You can use Form 13711, Request for Appeal of Offer in Compromise, or submit a written appeal containing the information required by the IRS. 

Why did the IRS reject my Offer in Compromise? 

An OIC may be rejected when the IRS determines that the proposed amount does not adequately reflect what it can reasonably collect based on your financial circumstances. The IRS considers factors such as income, expenses, assets, and reasonable collection potential. 

Tax Help for Rejected OICs 

A rejected Offer in Compromise doesn’t mean you’re out of options for managing tax debt. By understanding why the IRS rejected the offer, considering an appeal, exploring alternative solutions like installment agreements or CNC status, and staying compliant with current tax obligations, you can still work toward financial resolution. With persistence and, if needed, professional guidance, you can find a viable path to address your tax debt and alleviate the burden of IRS collections. 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.