Reapplying After a Denied Offer in Compromise: What to Change and When

What should you change when reapplying for a denied Offer in Compromise?

Reapplying after a denied Offer in Compromise (OIC) is more than sending in the same paperwork again. The IRS evaluates each submission on its merits by calculating your Reasonable Collection Potential (RCP) — equity in assets plus projected income available for collection — and a denial usually means the IRS believes the RCP equals or exceeds what you were offering. To succeed on reapplication, you must change the things that drove the denial: documentation accuracy, valuation of assets, allowable expenses, and (when applicable) timing.

Below is a practical, step-by-step guide to what to change, when to reapply, and how to present a stronger case.

Key changes that materially matter

1. Correct factual errors and add missing documents

• Review the IRS denial letter first. It explains why the offer was rejected and whether you have appeal rights. The denial letter often points to missing or inconsistent items. (See IRS guidance on Offers in Compromise for background.)IRS: Understanding Offers in Compromise
• Make sure tax returns for all required years are filed. Unfiled returns make you ineligible for most OICs.
• Reconcile bank records, pay stubs, retirement account statements, and proof of necessary monthly expenses. Missing income (e.g., side gigs) or omitted assets will torpedo credibility.

1. Rework your financial package — use the IRS forms correctly

• Complete the correct financial forms (Form 656 and the appropriate Form 433 series: 433-A for individuals, 433-B for businesses) and attach current supporting documents (recent pay stubs, bank statements, bills, appraisals).
• Make sure you used IRS Collection Financial Standards appropriately for allowed living expenses. Underreporting expenses or misclassifying personal spending will lead to denial; overstating without proof is also risky. See the Offer in Compromise Booklet for form instructions and standards.IRS: Offer In Compromise Booklet (Pub. 656-B)

1. Revalue assets and show actual realizable equity

• The IRS uses fair-market value less selling costs and secured debt to determine equity. If the IRS relied on a valuation you believe is incorrect, provide recent appraisals, listings, or proof of required repairs that reduce market value.
• Document encumbrances (liens, secured loans) and show why an asset is not readily available to satisfy the tax debt.

1. Update monthly income and allowable expenses

• If your income has dropped (job loss, reduced hours, reduced self‑employment receipts) or eligible expenses have increased (medical bills, childcare, eldercare), update the financial worksheet and attach corroborating documentation.
• For self-employed taxpayers, show a year‑to‑date profit-and-loss statement and business bank reconciliation to substantiate income changes.

1. Add new or changed circumstances

• Serious life events (major illness, death in the family, loss of employment, natural disaster damage) are material changes the IRS will consider. Provide medical records, termination letters, insurance payouts, and other proofs.

1. Consider payment structure changes

• The IRS evaluates lump-sum offers (based on equity + available cash) differently from periodic-payment offers (based on projected income). If you originally offered a lump-sum, a periodic offer that reflects changed cash-flow realities may be more persuasive — or vice versa.

When to reapply vs. when to appeal or request reconsideration

• Appeal: The denial letter will state whether you have administrative appeal rights with the IRS Office of Appeals. Appeals are appropriate if you believe the IRS misapplied policy, ignored evidence, or made a calculation error. Appeals usually must be filed within the timeframe in the denial notice (often 30 days). For the appeals process and strategy, see our guide: How Offer in Compromise Appeals Work After a Denial.

• Request reconsideration: If you have new, material evidence that was not available at the time of the original submission (for example, a recent job loss or a new medical expense), you can often request reconsideration or submit a new offer immediately. The IRS treats materially different offers as new packages.

• Reapply (new offer): Reapply when your facts have materially changed so that the IRS’s RCP calculation should be different. Reapplying without material change rarely succeeds. Consider waiting until you can show a demonstrable difference in income, expenses, or asset values.

Practical timeline and fee considerations

• Read the denial letter carefully for appeal deadlines and instructions.
• You may reapply at any time, but the most persuasive reapplications come after you can document a material change.
• Application fees and initial payment requirements are outlined on Form 656 and the IRS OIC instructions. Low-income applicants may qualify for a waiver; confirm current fees and waivers on the IRS site before filing.

A checklist for a stronger reapplication

• Read and annotate the IRS denial letter: treat it as a roadmap.
• Prepare corrected Form 656 and the correct Form 433 (A/B).
• Attach current bank statements (90 days), pay stubs (30–60 days), and contemporaneous bills/medical records.
• Provide third‑party evidence for valuations (appraisals, realtor statements, car auction listings).
• Produce proof of new circumstances (termination notice, medical records, settlement paperwork).
• Provide a clear narrative cover letter that explains what changed since the prior submission and why those changes affect RCP.
• If you are low-income, request the fee waiver and indicate the basis for it.

Example scenarios — what to change in practice

• Underreported expenses: Jane was denied because she reported only $450 in monthly medical expenses; she had substantial out‑of‑pocket orthodontia bills with receipts. When she refiled with receipts and a payment plan demonstration, the IRS lowered projected disposable income and accepted a revised offer.

• Asset overvaluation: Mike’s initial OIC counted his home’s market value without recognizing structural damage. He provided a contractor estimate and photos; the IRS reduced the equity calculation and accepted a lower offer.

• Income drop after denial: Sarah was denied when employed full-time. Two months later she lost her job and had three months of unemployment records and job search logs; her refiled offer reflected lower monthly income and was accepted as a periodic-payment offer based on her new situation.

Avoid these common pitfalls on reapplication

• Submitting the same package with cosmetic changes — the IRS expects material differences.
• Overstating expenses without documentation — this undermines credibility.
• Failing to file past-due returns — the IRS will not consider incomplete taxpayer compliance.
• Ignoring appeal rights documented in the denial letter.

Where to get help and next steps

• If you’re unsure which route is best (appeal, reconsideration, or reapply), consider consulting a CPA or an enrolled agent experienced in OICs. In my practice I often review the denial letter first and then recommend whether to appeal or to reapply after producing a targeted financial package.
• Use internal resources to build a stronger submission: our guide on Preparing a Financial Disclosure Package for an Offer in Compromise explains the documentation in detail and what the IRS looks for. Also see our practical checklist for Rebuilding After an Offer in Compromise Denial and an in-depth overview on How Offer in Compromise Appeals Work After a Denial.
• Preparing a Financial Disclosure Package for an Offer in Compromise: https://finhelp.io/glossary/preparing-a-financial-disclosure-package-for-an-offer-in-compromise/
• Rebuilding After an Offer in Compromise Denial: https://finhelp.io/glossary/rebuilding-after-an-offer-in-compromise-denial/
• How Offer in Compromise Appeals Work After a Denial: https://finhelp.io/glossary/how-offer-in-compromise-appeals-work-after-a-denial/

Authoritative sources

• IRS — Understanding Offers in Compromise: https://www.irs.gov/individuals/understanding-offers-in-compromise
• IRS — Offer in Compromise Booklet (Pub. 656‑B): https://www.irs.gov/pub/irs-pdf/p656b.pdf

Professional disclaimer

This article is for educational purposes only and does not constitute tax, legal, or financial advice. Individual cases vary; consult a tax professional (CPA, enrolled agent, or tax attorney) before submitting or reapplying for an Offer in Compromise.

Final takeaway: Reapply only after you correct the issues identified in the denial and can document material changes. A focused financial package, accurate valuations, and credible supporting documents are the practical changes that move denials to acceptances.