An Offer in Compromise (OIC) is an IRS settlement option to reach an agreement on how to deal with existing tax liability. The problem? It is rare that the IRS accepts the offer. In fact, studies indicate that three in four OICs are rejected – not exactly a good sign for millions of Americans who struggle with tax debt.
If you are one of many frustrated taxpayers who received an OIC rejection letter, try not to worry. It is not your final solution to deal with tax debt and there are ways you can work with a tax professional to reverse the verdict.
What Is an Offer in Compromise?
The OIC was established by the IRS as a method for dealing with outstanding tax liability to find a compromising solution. The problem is that trends demonstrate the IRS rarely settles in favor of the taxpayer.
Why? The federal government considers many factors before they approve an OIC, and many proposals fall short of expectations. OIC applicants generally go through a rigorous financial investigation in order to determine if they are appropriate candidates.
Dealing with OIC Rejection from the IRS
An OIC is a powerful tool for whittling down your tax debt. Needless to say, when an applicant receives a letter from the IRS confirming their OIC was rejected, they feel heartbroken.
However, it does not always mean that you were not considered an applicable candidate. It is possible your original proposal lacked information or failed to address factors that could have swung the final verdict in your direction. There are some common trends with OICs that get rejected:
The applicant receives too much income.
Let’s say you are a doctor who earns a high income, but you are currently unemployed. The IRS dwells on your earning potential rather than your temporary financial hardships.
The applicant is in bad faith with the IRS.
It is safe to assume that most people struggling with tax debt are having trouble paying back taxes. However, if you are not already in good standing with the IRS, this can be a determining factor for rejecting your OIC because they can not assume you will hold up your end of the offer.
The OIC is missing important information.
Sometimes it is as simple as having an OIC that lacked critical information, such as forgetting a Social Security Number or an Employee Identification Number.
It is also worth noting that taxpayers are ineligible for OIC if they have already filed for bankruptcy. Additionally, the taxpayer must have been in compliance with all of their past tax returns to receive OIC consideration.
Options After OIC Rejection
It is not the end of the world if you receive an OIC rejection letter. You can still reverse the decision by submitting an appeal. Applicants have 30 days after receiving the rejection to submit an appeal. You will need to fill out Form 13711 – Request for Appeal of Offer in Compromise from the IRS to process the request.
The appeal letter must address the issues raised in the OIC rejection response. Generally, the taxpayer must provide additional documentation to appeal to the IRS. An appeal can potentially renegotiate the settlement to terms the IRS will agree to. However, taxpayers who attempt to appeal with the IRS are far less likely to receive favorable results compared to those who seek the help of a tax professional.
Tax Help with Your OIC Appeal
The likelihood of reaching a settlement with the IRS for your first Offer in Compromise is rare, but you can improve your odds by appealing the decision and consulting with a tax professional.Levy Tax & Associates is here to help. We have more than 20 years of experience and plenty of expertise dealing with OICs. Contact us today at 800-TAX-LEVY or www.levytaxhelp.com.