When you have outstanding debts to the IRS, an Offer in Compromise (OIC) might be your best option for repayment. However, an OIC only works if the IRS accepts your offer—and many taxpayers’ offers get rejected. If you plan strategically before submitting your OIC to the IRS, you can ensure yours is accepted.
Typical Reasons an OIC Is Rejected by the IRS
The first thing to remember about an OIC is that the IRS can either reject or return your offer. They’re not the same thing. With a rejected offer, you have the option to appeal. With a returned offer, you can’t appeal, but you usually can resubmit once the error has been corrected with your application.
The most common reason the IRS rejects OICs is that the offer wasn’t large enough. The IRS reviewer on your case may think that you have more assets you can use to pay the tax liability than what you offered.
The most common reasons the IRS returns OICs are:
- Information was missing in your application.
- You did not provide the application fee of $203.
- You’ve accrued additional liabilities while the IRS evaluates your offer.
- You filed for bankruptcy while the IRS evaluated your offer.
- You have failed to remit the appropriate amount of estimated tax payments while the offer is in processing.
How to Increase the Chances Your OIC Gets Accepted by the IRS
Keep in mind that the acceptance rate for an OIC is low. However, you can increase the likelihood the IRS accepts by working with a tax professional. They can help ensure your application is error-free and that your offer follows the IRS’s accepted formulas.
Some tips to get your OIC accepted are:
- Ensure your application contains no errors or blank spaces.
- Propose a reasonable settlement offer.
- Stay up-to-date on your tax returns and file all past-due tax returns.
- Avoid taking on additional debt while the IRS is reviewing your OIC.
- Don’t wait to file an appeal if your first offer is rejected.
- Fill out all the required forms accurately.
- Pay the application fee and initial upfront payment on time.
You want your offer to be accepted by the IRS so you can begin clearing those debts away as soon as possible. At Highland Tax Group, we can help you prepare an OIC application that the IRS is more likely to accept.