It is easy to panic if your offer in compromise to the IRS (International Revenue Service) is rejected. After all, you may worry about the precarious financial position this leaves you in moving forward, especially with the tax deadline looming overhead.
However, it’s important to remember that most applications get rejected. For example, a recent study found that “the IRS accepted only 15,154 offers out of 49,285 in 2021”.
Furthermore, you are also given a chance to appeal against your rejection before considering alternative options. This means that you nearly always have a second chance, thus heightening your chances for success.
What is an Offer In Compromise?
In order to apply for an offer in compromise, it is essential that you understand precisely what this is.
To put it simply, an Offer in Compromise is a system designed for taxpayers who cannot pay their taxes outright. When you file an offer in compromise, you are requested to settle your tax bill for less than the total amount you owe. There may be many reasons why you attempt to obtain an offer in compromise. For example, you may have incurred unexpected expenses or lost your job.
Eligibility to file an offer in compromise is dependent upon the following:
- Your income.
- Your expenses.
- Your total tax debt.
- Your current tax returns.
- Your bankruptcy status/filings.
Typically, the forms required to file an OIC can be carried out independently. However, you may wish to enlist the help of a tax adviser. This is because they are more informed and can provide you with top tips to guide you through every step of the process. This likely gives you a better chance of succeeding first-time round.
Why might my Offer In Compromise be rejected?
As mentioned, many OIC applications are rejected outright – meaning most applications have to appeal this decision. However, understanding the most common reasons why an application is rejected can give you the best chances of success when filling out the original documents.
This can also help you determine whether an offer in compromise plan is suitable for you or whether you’d be better looking at an alternative repayment method.
The most common reason why an Offer in Compromise is rejected is due to the fact that your income is too high. After all, they then believe that you will be able to cover the cost of your taxes. Your potential earning income is also considered here, depending upon your career or qualifications, even if you are currently unemployed. As a result, you should work to understand what the IRS considers to be your earning potential and whether (or not) this will take you above the threshold for applying for an Offer in compromise.
If you have had issues in the past with paying your taxes or filing them on time, this may be grounds for your OIC to be rejected, as the IRS is less likely to trust that you are acting in good faith. If you do not have any other outstanding debts, then you are in an excellent position to apply.
Filing your taxes correctly is also instrumental when it comes to managing your finances and can sometimes be the reason why your request is rejected. For example, as the OIC form requires you to list your assets, you should make sure that your asset valuations are accurate and up-to-date. You should ensure that records of your expenses are well-managed and detailed and that you have all of the necessary receipts to hand. You should also ensure your proposed offer is reasonable and aligns with your financial situation – i.e., don’t try to underpay.
What does it mean if my Offer in Compromise is returned?
There are three potential outcomes from filing an offer in compromise.
If your form is rejected, you have thirty days to appeal or refile this document upon receipt of your rejection letter. This will give you a better chance of success, as the rejection letter will detail why you were rejected or any mistakes you made on your application.
If your offer is returned, however, this means that you are unable to appeal the decision and must consider an alternative solution when paying off your taxes. According to the IRS website, an OIC is returned “because the taxpayer didn’t submit necessary information, filed for bankruptcy, failed to include a required application fee or nonrefundable payment with the offer, hasn’t filed required tax returns, or hasn’t paid current tax liabilities.”
My Offer In Compromise was rejected. What now?
The most important thing to remember if your OIC is rejected is that you must not panic. There are plenty of other solutions available to you, even if it does not feel that way initially.
Hearing that your OIC has been rejected can be disheartening, especially if you find yourself in a difficult financial situation as a result. However, this also means that you are uniquely positioned to reapply, but with a better understanding of the process than when you first sent your application. After all, the letter of rejection will likely provide you with some guidance on where you went wrong.
When reapplying, you must fill out a form entitled “Request for Appeal of Offer in Compromise” (Form 13711) and write an appeal letter. This is your opportunity to negotiate or change their minds.
In most cases, it is highly recommended that you enlist the help of our tax relief team during this time. This is because we have a better understanding of the process, meaning we know exactly what it takes for your offer to be accepted – and can give you the best chance of success moving forward.
They’ll also be able to answer any questions you might have, putting your mind at ease. Finally, should your application get rejected once again, we’ll be able to discuss your options moving forward, putting you in the best possible position.