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Tax Problem Attorney BlogWhy Offers in Compromise Get Rejected
The Offer in Compromise (OIC) is an excellent program for potentially eliminating tens of thousands of dollars in tax debt, but first, your offer must be accepted by the IRS. Taxpayers may have seen advertisements promising that their tax debt can be settled for pennies on the dollar with an OIC, but not everyone is eligible for an OIC, and those that are eligible must follow the program’s guidelines carefully. For some taxpayers, an OIC will only be accepted after negotiations and possibly appealing an OIC rejection.
Determining Your Collection Potential
The IRS accepts an OIC when it determines that the offer is the most that they can reasonably expect to collect from you based on your financial information. If you receive a rejection letter from an offer specialist, it will often be because the IRS believes that your offer does not represent the most that they can get from you.
The offer specialist will make this determination based on your collection information statement. You are given statutory allowances for certain expenses, and the IRS will decide how much disposable income you have to pay off your tax debt. The IRS also considers your future earning potential. If you are living off of a fixed income that is unlikely to increase in the future, you have a stronger case for an OIC. If your income is likely to fluctuate or decrease in the future, you will have to provide evidence to the offer specialist substantiating this fact.
If you cannot make an offer that the IRS thinks is the most it can expect to collect from you, your OIC will be rejected. At this point, you should consider an installment agreement or other options.
Appealing an Offer in Compromise Rejection
OICs are also rejected if you have failed to file any tax returns, if you have failed to provide all of the required information, or if you accumulate additional tax debt. The IRS can take quite a while to make a decision on an OIC, and any non-compliance by the taxpayer while an OIC is being reviewed will likely result in a rejection.
If you are unable to convince the offer specialist to accept your OIC, you have the right to appeal their decision within 30 days of your rejection letter. Consult with a tax attorney if you are not sure if you have a good case to make on appeal, or you may end up wasting your time by pursuing a frivolous argument.