An offer in compromise (OIC) helps many taxpayers get the fresh start they need after having substantial tax debt that they don’t have the ability to repay. It can be very disheartening if the Internal Revenue Service (IRS) denies your application. Was your IRS offer in compromise rejected? There are options to appeal your case as long as you act quickly.
An offer in compromise allows you to settle your tax debt for a lesser amount. It helps you clear your IRS tax liability and get back on track with paying your taxes. Very few taxpayers qualify for an OIC, however, so it’s important to know your next steps if your offer is rejected.
Why Do Rejections Happen?
An OIC could be rejected for many reasons, including if you are not up to date on your current taxes or if you have insufficient proof of your income, assets, and expenses. The IRS will also reject an OIC if it believes you should be able to use another method of debt settlement.
How to File an Appeal for an Offer in Compromise
A notice from the IRS will inform you of its decision on your OIC. If your offer was rejected, you have 30 days to appeal it. Missing this deadline will prevent you from appealing the decision.
An appeal should provide clear and specific information that disproves the reason the IRS gave for rejecting your offer. In fiscal year 2024, there were 3,805 appeals of OICs. That year, 5,276 OIC appeals were closed, and 2,123 cases were still pending as of September 30, 2024. Your appeal should either be in the form of a Request for Appeal of Offer in Compromise, or it should be a letter that includes:
- Your name, address, and tax identification number
- Your phone number
- Your statement of intention to appeal the decision to the IRS Independent Office of Appeals
- A copy of your rejection notice
- The tax years or period that is relevant
- A list of what specific things you don’t agree with and why
- Supporting information to prove your position
- Any law, code, or authority you should cite
- Any other relevant information
- Your signature, stating that the letter is true, correct, and complete, under penalty of perjury
You have to be specific in your appeal. You may disagree with the amount the IRS calculated for your income, your expenses, or the value of certain assets. These are specific elements you can disagree with and prove why you disagree with them.
You must provide accurate information on the value of an asset or the amount of income or expenses. You can only appeal after comparing those values to either the Income/Expense Table Worksheet or the Asset/Equity Table Worksheet. These worksheets will show you the numbers used by the IRS to make their decision. If their decision was wrong, you can file the appeal. Simply stating that you can’t pay the tax will not be sufficient in the appeals process.
FAQs About IRS Offer in Compromise Rejected
What Happens if the IRS Rejects an Offer in Compromise?
If the IRS rejects an offer in compromise, you have the option to appeal this decision. It’s important to review the reason the IRS gave for denying your application. When you disagree with their decision, you can appeal by providing information that supports that disagreement and proves why you qualify for the OIC.
If the IRS rejects an OIC and you cannot disprove their reasoning, you could assess other forms of debt settlement, including a payment plan.
How Much Will the IRS Accept for an Offer in Compromise?
How much the IRS will accept for an offer in compromise is how much the agency believes you can pay and what it can reasonably expect to collect from you. It reviews information like your expenses, your income, your asset equity, and your ability to pay the debt. Because of this, your OIC amount will be entirely unique to your situation. You shouldn’t over-promise in an OIC, as if the OIC is accepted, you could still face financial hardship.
What Is the Downside of an Offer in Compromise?
The primary downside to an offer in compromise is that few offers are accepted by the IRS. Another downside is that they can still create financial difficulties if they are handled poorly. When you make an offer, you want to find the right value that the IRS is likely to accept, but does not require you to pay more than you can afford. If you are unable to pay the OIC because you offered too much, it causes other issues.
What Percentage of Offers in Compromise Are Accepted?
In fiscal year 2024, the IRS accepted 21% of offers in compromise made, or 7,199 OICs out of 33,591 OICs made by taxpayers. In comparison, in 2023, there was an acceptance rate of 42%. OICs are hard to get, as you must meet several qualifications to even apply. You then also have to meet other qualifications for the IRS to accept the offer. It is helpful to hire an Jacksonville state taxes lawyer to potentially get an OIC.
Hire an Offer in Compromise Lawyer
At TaxSmith, LLC, we have years of experience in tax codes and dealing with the IRS on behalf of taxpayers. We understand how sudden emergencies and personal circumstances can lead to penalties and interest, and how that can become a tax debt you have no financial ability to pay. Our firm can help you review your options, including an OIC.
When you work with our team to create an OIC, your chances of success are higher. This is because our team knows what qualifications are required to file an OIC and how to present your case in the ideal light.
If you have already been rejected for an OIC application, our firm can help you with the appeals process. We can also help you assess other options for debt settlement, including a payment plan, Currently Not Collectible status, or penalty abatement.
Our firm’s goal is to present transparent and straightforward tax advice for individual and business taxpayers. We review your specific circumstances and help you take action to protect your financial interests. Our attorneys can negotiate with the IRS to address your tax debt and work to find the ideal solution. Contact our team today.
