Offer in Compromise Rejected, Now What? IRS Offer in Compromise Appeal With Form 13711
The IRS rejects the majority of offer in compromise applications. So if your application was rejected you're not alone. But dealing with a rejection is still frustrating. You're probably thinking, my offer in compromise was rejected, now what? The next step is to appeal by filing IRS Form 13711 (Request for Appeal of Offer in Compromise) or by writing an appeal letter to the IRS.
To help you out, this guide takes a detailed look at the appeals process, and it explains what to do if the IRS rejects your offer for a tax settlement.
Why Did the IRS Reject Your Offer in Compromise?
If you want your appeal to be successful, you need to figure out why the IRS rejected your offer. This will help you hone in on the right areas when you craft your appeal. It can also help you figure out if you need to change the amount of your offer or pursue a different tax resolution option for your tax debt. The first step is to figure out if your offer was rejected or returned.
Offer in Compromise Return Vs. Rejection
A return is when the IRS sends your offer in compromise application back without fully reviewing it. A rejection is when the agency reviews your application and denies your offer.
You can't appeal a returned offer in compromise. Instead, you should correct the application and resubmit it. In contrast, if the IRS rejects your offer, you can accept the rejection or appeal. If you appeal, the IRS will review your application again and look at any new arguments or documents that you provide.
Reasons the IRS Returns Offer in Compromise Applications
If you don't send the right information or if you make certain mistakes on your application, the IRS will just return your offer in compromise application. The agency will also return your application if you don't meet the program requirements or have broken a tax law.
Here are some of the most common reasons that the IRS returns OIC applications.
- You filed for bankruptcy.
- You didn’t pay the application fee, and you don't qualify for the low-income fee waiver.
- You recently submitted a similar offer that was rejected.
- The IRS decided your offer was frivolous or made just to delay IRS collections.
- You accrued additional tax liabilities while the IRS was considering your offer.
- You had other tax filing or payment compliance issues such as failing to pay estimated tax, not having adequate withholding, or not filing a required income tax return.
- You didn't send additional information related to your application when the IRS requested it with a 14-day letter.
- You decided to pay via the periodic payments option but you did keep up with your monthly payments.
Wondering if you should apply again if your application was returned? Simply, figure out why it was returned and see if you can rectify the issue. You may want to contact a tax pro to help you. They can let you know if you should reapply or look for another option for your tax debt.
Reasons for Offer-in-Compromise Rejections
If the IRS rejects your offer, the agency will notify you by mail. The rejection letter should explain why your offer was rejected, but if it doesn't, you can contact the agency and ask why your offer was rejected. Generally, the IRS rejects offers in compromise for the following reasons:
- The offer is too low, and the IRS believes you can pay more.
- The IRS believes you have the ability to pay in full or make payments on your tax debt.
- You are living above your means or you have high living expenses.
The IRS typically only accepts offers that reflect your reasonable collection potential. This is the amount of money the IRS believes that it could get if it enforced collection actions. To calculate your reasonable collection potential, the agency considers your income, expenses, assets, and debts.
How to Appeal an Offer in Compromise
You have 30 days from the date of the rejection letter to request an offer in compromise appeal. After 30 days, the IRS generally won't accept your appeal. That is why it's important to act quickly.
Your rejection letter should include details on how to request an appeal. It should have the address where you need to send the appeal, and it should list the information you're required to provide with your appeal. Here is an overview of the two types of appeals processes.
Appeal an IRS Offer In Compromise With Form 13711
If you want to simplify the appeals process, you should complete Form 13711 (Request for Appeal of Offer in Compromise). This IRS form outlines the information the IRS needs to process your appeal. If a tax professional is signing your form, complete Form 2848 (Power of Attorney and Declaration). Then, send these forms to the address provided in your rejection letter.
When you fill out Form 13711, you need to note what you disagreed with in the rejection. Then, you need to convince the IRS that your argument is valid and provide supporting documentation to make your point.
IRS Offer In Compromise Appeal With a Letter
If you don’t want to fill out Form 13711, you can send a letter to the IRS. In the appeal letter, you should state your intent to appeal and include the following information:
- Contact information (name, address, phone number).
- Social Security Number.
- Copy of the rejection letter from the IRS.
- List of the tax years related to the taxes owed.
- The reasons you don’t agree with the rejection.
- Documents or facts that support your disagreement.
When you're done drafting the letter, write that all information is true under “penalties of perjury” and sign it. Then, send the letter to the address on your rejection letter.
Items to Appeal on a Rejected Offer in Compromise
When you apply for an offer in compromise, you provide the IRS with detailed information about your finances, and the IRS uses that information when deciding whether or not to approve your offer. The IRS also takes into account whether or not you're experiencing economic hardship and the fairness of requiring you to pay the entire tax debt.
Generally, if you appeal an offer in compromise rejection, you will address the elements the IRS analyzed when making its decision. In your appeal, you will need to establish that the information the IRS used was incorrect, or you will need to argue that the way the appeals officer interpreted the information was incorrect. To help you out, here are some of the elements you may end up arguing if you appeal the rejection on your OIC application.
Income and Expense Table or Asset and Equity Tables
These tables show your income, expenses, assets, and equity. If this information is incorrect, the IRS may overinflate your reasonable collection potential and assume that you can pay more on your tax settlement. When you appeal, you can disagree with items from the Income and Expense Table or the Asst and Equity Table.
To give you an example, imagine that you disagree with the IRS's value of one of your assets. You should note that you disagree and then attach a copy of an appraisal from an objective third party. Or let's say that you disagree with the IRS's estimate of your future income. You can use this form to explain why and present your side of the story.
Allowable Expense and Special Circumstances
In many cases, your actual expenses will match the expenses in the Income and Expense Table. However, in some case, the IRS may note an allowable expense that is lower than your actual expense. The IRS's allowable expenses vary based on the type of expense and where you live.
For instance, imagine that you spend significantly more on electricity than the IRS allows. The IRS rejects your offer and claims that you can afford to make a bigger offer if you reduce your exorbitant electricity costs. However, when you appeal, you explain that the excess electricity is for your business which is going to help you earn money to cover the tax debt. Or you explain that the electricity is for medical equipment that you need to survive.
These are the types of special circumstances that you can cover when you appeal your OIC rejection. A tax attorney or other tax resolution specialist can give you ideas on other arguments that you may be justified in making.
Rejection Reasons From the OIC Response Letter
You can also disagree with rejection reasons that were stated in the letter but not in the table. Simply, note the item on the form, explain why you disagree, and attach documents to support your argument.
Hardship Status and Effective Tax Administration
If you apply for an offer in compromise based on effective tax administration, you basically try to convince the IRS that paying your full tax liability would cause economic hardship. Effective tax administration applies in cases where it would be unfair or unjust to hold you responsible for the tax.
However, hardship is a subjective concept. The IRS may think that you're not suffering hardship based on the details on your OIC application. You can appeal that by explaining why economic hardship applies to your situation. Or you can provide more details about how it would be unfair to hold you responsible for the full balance of your tax debt.
Explaining these elements effectively requires extensive knowledge of the tax law. To make a strong argument to an appeals officer, you need to understand what they look for when they review an offer in compromise appeal. This can be hard to do as a novice. In contrast, a tax attorney, an Enrolled Agent, or CPA deals with IRS appeals on a regular basis. They know the best way to structure your appeals request to get the result that you want.
How to Make a Larger Offer After a Rejection
If you don’t want to appeal your former offer, you can make a larger offer. In this case, you should submit your original paperwork along with a letter stating the increased offer amount. To boost your chances of acceptance, you may want to work with a professional who can help you determine the amount the IRS is likely to accept.
If you are looking for a tax professional who has experience with helping people settle their tax debt for less than they owe through the IRS Offer in Compromise program, start a search below. TaxCure helps you find local tax professionals with the experience that you need.
Disclaimer: The content on this website is for educational purposes only and does not serve as legal or tax advice. For specific advice regarding your tax situation, contact a licensed tax professional or tax attorney.