When you’re struggling with serious tax debt, the idea of an offer in compromise can bring you enormous relief. You put a lot of work into this process, from the multiple forms required by the IRS to the supporting documentation you must also provide. Getting your offer rejected can be incredibly discouraging, but it’s important to recognize that this isn’t the end of the road.
You have options available to you, and by exploring your options and staying proactive, you can still make progress on your tax debt. Take some time to figure out why your offer was rejected and how you can move forward. For more personalized advice and guidance, call Paladini Law at 201-381-4472.
What Happens When Your Offer in Compromise is Rejected?
The IRS is careful about the offer in compromise applications it accepts. In 2023, they accepted about 42% of all offer-in-compromise applications—a significant jump from 36% the year before. However, this still means that any particular offer is more likely to be denied than accepted.
Once the IRS makes a decision, they will send you a formal rejection letter. While it can be hard to look at anything past the word “rejected,” reading this letter thoroughly is key to figuring out your next steps. Some of the important parts of this letter include:
- The reason for the rejection
- Your right to appeal their decision
- The timeline for an appeal (30 days from the date on the letter)
Why Offers Are Rejected
There are several reasons that an offer-in-compromise application may be rejected. Understanding why the IRS chose not to accept your offer is a critical part of figuring out what to do next. Some of the most common reasons for rejection include:
- Offer is too low: If your offer is below the minimum that the IRS would consider, they’ll reject it outright. Your offer shouldn’t just be what you want to pay; it must reflect what you are capable of paying. If there is a compelling reason for you to pay less than your collection potential, you may want to apply for an offer based on equitable tax administration.
- Assets or income too high: This is closely related to the previous one. Perhaps your offer is too low considering your assets and income, or maybe you have enough assets and income that the IRS believes you are capable of paying your tax debt in full.
- Ineligibility for the program: The offer in compromise program has a variety of requirements you must meet before your application will be considered. If you are in active bankruptcy proceedings, have not filed required tax returns, or have not made required estimated payments, you may automatically be ineligible. However, in this situation, the IRS may just send back your application, rather than reviewing it and rejecting you.
- Lack of compliance: The IRS is unlikely to accept an offer in compromise if you have a poor history of tax compliance. You have to be compliant with their requirements for the five-year period after your offer. During this time, you cannot request an installment agreement, request another offer in compromise, incur any delinquent taxes, or fail to file tax returns on time. If your tax history shows that you are frequently noncompliant with IRS requirements, they may not risk an offer in compromise.
Your Options After an Offer in Compromise Rejection
While a rejected offer in compromise may feel like a significant setback, it isn’t the end for you. The best option for you moving forward depends on the reason for your rejection.
File an Appeal
You can appeal the IRS’s decision under certain circumstances. If you think their evaluation of your finances was unfair or inaccurate, you may want to appeal and provide evidence backing up your claim. If you’ve uncovered new documentation or evidence since submitting your initial offer in compromise, appealing and providing that new information could also change the outcome.
You can begin the appeal process by filling out Form 13711, Request for Appeal of Offer in Compromise. After filling out your basic contact information, you can move on to the section where you must dispute specific items in your Income and Expense Table or your Assets and Equity Table. Be detailed and include each error on a separate line. If you have documentation to back it up, include that with your paperwork.
For example, if the IRS overvalued your home and therefore your home equity, provide paperwork showing your home’s current market value. In this type of situation, it’s better to be too detailed than to be too vague. You have to override the IRS’s objections and demonstrate that you are incapable of paying your tax debt in full, and that means eliminating any doubt as to your inability to pay.
Additionally, depending on how much time has passed since your application, you may have new tax returns due. Ensure that you are compliant with all required filings and payments to avoid having your appeal denied for a different reason.
Submit a New Offer in Compromise Application
Perhaps an appeal isn’t the best option for you; in some cases, your time is better spent submitting an entirely new offer in compromise application, especially if the 30-day appeal window has closed.
This is a viable option if your financial situation has changed dramatically and your inability to pay is more obvious. You may also want to submit a new application if you have substantial new supporting documentation to submit a stronger application.
However, going this route means paying the application fee again and making either a new down payment or monthly payment. In order to give yourself a better chance of an approved offer, spend some time looking at why your previous application was rejected. You’ll want to strengthen your application in that area while still ensuring that you aren’t rejected for any of the other common reasons for denial we discussed above.
You should also discuss your application with a tax professional—applying for an offer in compromise involves a lot of time and money, and working with a tax attorney is one way to ensure you put forth the best application you can. Additionally, if your situation is such that you’ll never get approved, a tax pro can tell you that upfront to save you some time and help you explore other options.
Explore Other Alternatives
If you’ve decided not to pursue an offer in compromise any further, there are other IRS relief programs that may better suit your needs. Consider the following:
- Installment agreements: The IRS may have rejected your application because they believe you are able to pay your tax debt off in 72 months or less. You may want to look into this payment option and find out if the monthly payment fits into your budget.
- Partial payment installment agreements: Like the offer in compromise program, partial payment installment agreements are intended for taxpayers who cannot pay their tax liability off in full. Those approved for this program make monthly payments until the Collection Statute Expiration Date, at which point the rest is written off. Note, though, that if your financial situation improves, the IRS may require you to pay the full amount owed.
- Currently not collectible status: Taxpayers who genuinely have no money to put toward their tax debt may qualify for currently not collectible status. While a taxpayer is considered currently not collectible, the IRS stops collection activities. Interest and penalties do keep accruing, however. The IRS checks back in periodically to find out if your financial situation has improved enough for you to make payments.
When to Consult a Tax Professional or Attorney
There are several signs that you should consider talking to a tax attorney about your rejected offer in compromise. Perhaps you’ve gone over your letter and application several times, but you can’t figure out why it was rejected—or maybe you haven’t even sent in your application because the entire process is too complex.
If the rejection reason is complex, multifaceted, or involves your tax compliance, talking to a tax attorney can help you better understand your path forward. Even if you used another tax attorney to file your offer in compromise, it may be worth talking to a different tax professional if you’ve lost faith in the attorney who assisted you.
Tax professionals bring a variety of skills and a wide berth of knowledge to your case. Their understanding of IRS requirements and procedures allows them to explain the offer-in-compromise program in a simple, direct manner. The right tax attorney can also explain why your application was rejected or help you uncover mistakes in the IRS’s rejection. If an offer in compromise isn’t a viable option for you, a tax pro may guide you to other potential solutions.
Tips for Choosing a Trusted Tax Professional
Picking the right tax professional can make this process much easier and less stressful for you. We recommend:
- Focusing on tax firms that have extensive experience with offer in compromise cases and great success stories.
- Staying away from scam tax relief companies that guarantee offer in compromise approval or claim they can settle your debt for pennies on the dollar.
- Checking into reviews from multiple sources, including those where the company cannot delete negative reviews.
- Limiting your search to companies that employ tax attorneys, CPAs, and enrolled agents.
To get more tips, check out this guide on how to find legitimate tax relief help.
DIY Options and When They May Work for You
Considering handling your offer in compromise rejection on your own? If you are confident in your understanding of IRS requirements and you can see where you fell short in your original application, you may be able to appeal on your own by filing Form 13711. Double-check everything you submit for accuracy and thoroughness.
You may also have luck submitting a new offer in compromise on your own, especially if you realize that you did not submit enough documentation or that you failed to include pertinent information.
Just so you know, self-representation comes with risks. You put in substantial time and work without really knowing your odds of getting approved. If you send in a new offer in a compromise application, you are again paying the down payment and fee without knowing whether or not your approval odds are good. If you choose this route, look through the IRS’s documentation and requirements thoroughly to cover your bases.
While a rejected offer in compromise can be demoralizing, it isn’t the end of the road for you. Whether you decide to appeal the denial, send in a new offer in compromise application, or try another form of relief, you can still tackle your tax debt in a way that fits your finances.
To get help, consider consulting with a tax pro for professional guidance on your situation. A little insight and support can help you get closer to your tax resolution goals. Set up a free consultation with Paladini Law now by calling us at 201-381-4472 or scheduling online.
