An Offer in Compromise (OIC) is an agreement with the IRS that allows taxpayers to settle tax debt for less than the full amount owed, based on ability to pay and financial hardship. However, if your OIC is rejected, you are not without recourse. Appealing a rejected OIC lets you formally ask the IRS Appeals Office to take a fresh, impartial look at your case.
Understanding Why OICs Are Denied
The IRS denies OICs primarily because they believe they can collect more than your offer, or due to taxpayer non-compliance with tax obligations. Common reasons include:
- Ability to Pay: IRS may determine you have sufficient income or assets to pay your tax in full or a higher amount than the offer.
- Insufficient Offer: The offer amount is less than the IRS’s calculated minimum collectible amount.
- Non-Compliance: Failure to be current on filing all tax returns or paying required estimated taxes.
- Incomplete Documentation: Missing or inadequate financial records.
- Lack of Cooperation: Not responding to IRS requests.
- Previous OIC Issues: Prior rejected or defaulted OICs affecting IRS confidence.
Understanding the rejection reasons, usually detailed in the IRS denial letter such as Letter 2604C, helps frame your appeal.
Step-by-Step Guide to Appealing a Rejected OIC
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Carefully Review the IRS Rejection Letter: Identify rejection reasons and your appeal rights. The letter includes Form 9423, Collection Appeal Request (CAR), or references to IRS Publication 1660.
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File Form 9423 Within 30 Days: Submit the Collection Appeal Request to the IRS Office of Appeals to initiate your appeal. This deadline is strict.
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Gather New Evidence and Documentation: Provide updated financial information, such as recent pay stubs, bank statements, medical expenses, or corrected asset valuations that address IRS concerns.
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Prepare for the Appeals Conference: The Appeals Officer will review your file and may arrange a phone, video, or in-person meeting to discuss your case. Present your situation clearly and honestly.
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Await the Appeals Officer’s Decision: They may overturn the denial and reinstate or accept your OIC, or uphold the IRS’s original decision.
Who Should Appeal Your Denied OIC?
- Taxpayers with changed financial circumstances after the initial OIC submission.
- Those who believe IRS erred in assessing ability to pay.
- Previously non-compliant taxpayers who are now current.
- Individuals willing to adjust their offer amount.
Tips for a Strong OIC Appeal
- Act promptly to meet the 30-day appeal deadline.
- Provide clear, thorough, and well-organized documentation.
- Submit new financial information not previously considered.
- Maintain full compliance with all tax filings and payments during the appeal process.
- Be honest about your financial situation.
- Understand your Net Realizable Value (NRV)—the IRS estimate of collectible amounts from your assets and future income.
- Consider consulting a tax professional experienced with IRS appeals for guidance.
Avoid These Appeal Mistakes
- Missing the 30-day deadline.
- Offering vague disagreement without reasons or evidence.
- Falling behind on tax compliance.
- Providing false or misleading information.
- Ignoring IRS communications.
- Giving up prematurely.
Frequently Asked Questions
How long does an appeal take? It varies—often a few months to longer depending on case complexity and office workload.
Do I have to pay while appealing? Collection actions are generally suspended during the appeal, but interest and penalties continue.
Can I submit a new OIC instead of appealing? Yes, but appeals are usually more efficient since they avoid new fees and resets. New OICs do not pause collections unless approved.
What if my appeal is also rejected? You may consider judicial options like Tax Court, but administrative appeal rights end.
Is there a fee to appeal? No additional appeal fees, but the initial OIC application fee is non-refundable.
Additional Resources
- Learn more about Offer in Compromise (OIC) and Letter 2604C: Rejection of Offer in Compromise.
- Visit the IRS official pages on Offer in Compromise and IRS Office of Appeals for authoritative details.
Appealing a rejected OIC can be a challenging but worthwhile step to resolving your tax debts more favorably. With careful preparation and understanding of the process, you can increase your chances of success and regain control over your financial future.