Overview

Reopening a denied Offer in Compromise (OIC) is not automatic — it is a deliberate, documentation-driven process. Taxpayers can either file an administrative appeal of the denial or prepare and submit a new offer that addresses the IRS’s reasons for rejection. The most successful reopenings show clear, material changes in financial circumstances (job loss, medical bills, reduced income, decline in asset value) or correct procedural issues that caused the original denial.

This guide explains the practical steps, required documents, timing, and pitfalls to avoid when you attempt to reopen a previously denied OIC. It also points to related resources and alternatives to consider if reopening is unlikely to succeed.

Sources: IRS, Understanding Offers in Compromise; Form 656; Publication 1854; Form 13711 (Request for Appeal of Offer in Compromise).

Why the IRS denies OICs (and what that means for reopening)

When the IRS denies an OIC, it will send a written notice that explains the reason(s) for rejection. Common reasons include:

  • The taxpayer’s Reasonably Collectible Equity (RCE) or future income shows they can pay the balance (doubt as to collectibility).
  • The offer package had missing or inconsistent documentation.
  • The taxpayer failed to file required tax returns or stay current with estimated tax payments.
  • The case was closed under effective tax administration rules without meeting the threshold for compromise.

Understanding the specific reason on the denial notice is essential because it determines your next step:

  • If the denial is based on missing paperwork or correctable financial information, preparing a new, complete application is often the best route.
  • If the denial reflects a judgment call by the IRS about collectibility or fairness, you can request an appeal using Form 13711 or submit new facts that materially change the collection analysis.

For background on how the IRS evaluates financial information, see “Inside an Offer in Compromise: How the IRS Evaluates Your Financial Picture.” (https://finhelp.io/glossary/inside-an-offer-in-compromise-how-the-irs-evaluates-your-financial-picture/)

Two paths to reopen: appeal vs. new offer

1) Appeal the denial

  • Use Form 13711 (Request for Appeal of Offer in Compromise) to ask an independent appeals officer to review the rejection. The appeal must generally be filed within the time period stated in the denial notice—read the notice carefully and meet the deadline. (See IRS Form 13711 and accompanying instructions.)
  • An appeal is typically effective when you can show the original decision was based on incorrect facts, misapplied policy, or when you can present additional corroborating evidence.

2) Submit a new offer

  • Prepare a fresh Form 656 and the required financial statements (Form 433-A for individuals/Form 433-B for businesses) with updated, thorough documentation.
  • Explain explicitly how your circumstances changed since the original filing. Include new tax returns, pay stubs, termination letters, medical bills, or other proof.
  • If the prior offer was returned for procedural reasons (e.g., missing signatures or incomplete forms), fix those issues and reference the prior case number or denial letter to give context.

Both routes can be valid. In practice, appeals often work best where the denial is narrow and challengeable; resubmission is often best when the taxpayer has new, material facts.

Step-by-step checklist to reopen successfully

  1. Read the denial notice thoroughly. Identify the exact reason(s) and any statutory/administrative citations.
  2. Confirm you’ve filed all required federal tax returns and are current on estimated payments.
  3. Gather new supporting evidence that addresses the IRS’s reason for denial — examples below.
  4. Choose your route: file Form 13711 to appeal, or prepare a new Form 656 with updated financials.
  5. If resubmitting, include a clear cover letter that summarizes changes since the first submission and attaches a timeline and numbered exhibits.
  6. Consider a low-income waiver of the $205 OIC application fee if you meet the IRS low-income guidelines — include Form 656-L if applicable.
  7. Maintain open lines of communication with the IRS settlement officer assigned to your file; keep documented records of all calls.
  8. If the IRS accepts your reopened offer, obtain written confirmation of terms. If rejected again, evaluate alternative options.

Suggested documentation to include

  • Recent pay stubs, termination letters, or proof of reduced income.
  • Bank statements (3–12 months) showing reduced receipts or increased withdrawals.
  • Medical bills, notarized statements, or documentation of disability-related expenses.
  • Appraisals or sales contracts showing decline in asset value (cars, real estate, business goodwill).
  • Updated tax returns and proof of on-time filing.
  • A concise personal statement or affidavit explaining material life changes.

How the IRS measures a new offer: Reasonably Collectible Value (RCV)

When you reopen or resubmit an OIC, the IRS recalculates your Reasonably Collectible Value (RCV) — sometimes called Reasonably Collectible Equity (RCE). That calculation looks at the net realizable value of assets plus the amount the taxpayer can reasonably pay from future income. If your new documentation reduces the RCV (for example, a drop in income or asset values), your chances of acceptance improve.

For deeper explanation of these mechanics and a walkthrough of calculations, see FinHelp’s guide “How Offer in Compromise Amounts Are Calculated” (https://finhelp.io/glossary/how-offer-in-compromise-amounts-are-calculated-a-simple-walkthrough/).

Timing and realistic expectations

  • Processing time: Reopened or new OICs can take several months to over a year depending on IRS workload and case complexity. Expect regular requests for additional documentation.
  • Appeal timeline: Appeals through Form 13711 also take months, but you’ll have the advantage of independent review by the IRS Office of Appeals.
  • Probability of success: There’s no guarantee. Statistically, Offers in Compromise have relatively low acceptance rates because the IRS’s bar is high. Success usually follows well-documented, material changes or correction of procedural errors.

Alternatives if reopening is unlikely to succeed

If reopening or appealing is not promising, consider other options:

  • Installment Agreement: A structured payment plan to resolve taxes over time. Useful when the IRS thinks the tax can be collected.
  • Currently Not Collectible (CNC) status: Temporarily halts collection activity if you can’t afford payments at all.
  • Bankruptcy: May discharge certain tax debts in narrow circumstances — discuss with a bankruptcy attorney.
  • Innocent spouse or relief programs: If tax liability arises from a spouse’s actions, relief may be available.

See FinHelp’s article on “Options When the IRS Rejects Your Offer in Compromise” for comparison and decision-making guidance. (https://finhelp.io/glossary/options-when-the-irs-rejects-your-offer-in-compromise/)

Common mistakes to avoid

  • Resubmitting the same dated information without showing material change.
  • Failing to read and follow the instructions on Form 656 and Form 433 series.
  • Missing deadlines stated in IRS denial notices when filing appeals.
  • Overlooking required supporting documentation (bank statements, proof of expenses).
  • Not staying current on tax filing and payment obligations while the OIC is pending.

Practical examples (short)

  • Example 1: Job loss after denial — applicant provided termination letter, recent zero-income bank statements, and medical bills; IRS recalculated RCV and accepted a lump-sum compromise at a reduced amount.
  • Example 2: Prior application returned for missing signatures — corrected forms and a detailed cover letter referencing the prior case number led to a successful acceptance after resubmission.

These examples reflect the kinds of material changes and procedural fixes that sway settlement officers.

Final professional tips

  • Prepare a clear, labeled exhibit packet; make it easy for the reviewer to connect each fact to the denial reasons.
  • Use timelines and summary pages at the front of your packet.
  • If uncertain, consult a CPA, enrolled agent, or tax attorney experienced in OIC and IRS appeals — professional representation often improves clarity and timeliness.

Disclaimer

This article is educational and does not constitute legal, tax, or financial advice. For guidance tailored to your situation, consult a licensed tax professional. Official IRS guidance on offers in compromise is available at the IRS website: Understanding Offers in Compromise; About Form 656; Publication 1854.