How to Appeal a Rejected Offer in Compromise

If the IRS rejects your offer in compromise, don’t worry. The rejection is not final. You have 30 days to appeal by filing Form 13711 (Request for Appeal of Offer in Compromise). To help you out, this guide explains the process.

Appealing a rejected offer in compromise can be a tricky process. To ensure the best results for your situation, you should work with a tax attorney. At The W Tax Group, we can help you appeal a rejected offer in compromise or help you find other resolution options for your unpaid taxes. To get help, contact us today.

Common Reasons for Offer-in-Compromise Rejections

Generally, the IRS rejects offers in compromise because the agency thinks your offer is too low or it believes that you can afford to pay in full. The IRS may also reject your offer if the living expenses you used while calculating the offer are too high.

In some cases, the IRS may return your offer in compromise. This is different than a rejection.

OIC Return or Default Versus Rejection

The IRS may return your OIC application for procedural, clerical, and administrative issues. For example, if you are filing bankruptcy, forget the application fee, or fail to fill out the application fully, the IRS may return your offer.

There are several other reasons that your offer may be returned to you. This is not the same as a rejection, and you cannot appeal a returned offer. However, you can apply again. To prevent your application from getting returned again, talk with a tax pro. They can help you submit a correct offer in compromise application.

How to File an Appeal of an Offer in Compromise Rejection

To appeal your offer in compromise rejection, you should file Form 13711 (Request for Appeal of Offer in Compromise). Or you can write the IRS a letter with the same information requested on this form. You should send your appeal to the IRS office that sent you the rejection letter.

Again, don’t forget that you must appeal within 30 days. If you miss this deadline, the IRS will reject your appeal.

How to Fill Out Form 13711 (Request for Appeal of Offer in Compromise)

This form requires basic information about you and your tax liability. Then, it has you list the items you disagree with. In most cases, you will note numbers that the IRS included in your rejection letter, and you will present the numbers you think are correct. Then, you will detail why your numbers are correct.

Finally, you will attach documents to support your claims, and you will sign and submit the form. The following sections contain more information about this process.

Preparing to Appeal an Offer in Compromise Rejection

To appeal your offer in compromise rejection, you should look over the rejection and identify which areas you disagree with. Then, you should prepare to back up your argument using the tax legal code.

When you apply for an offer in compromise, the IRS calculates a minimum offer amount based on your reasonable collection potential (RCP). RCP is determined by the information you provide about your income, assets, debts, and expenses.

If your offer is less than this amount, the IRS will reject it. Generally, your appeal will focus on the elements the IRS used to calculate your collection potential.

To structure your appeal argument, you will need to look at information from the income expense table (IET) and the asset equity table (AET) that came with your rejection letter. Then, you will compare that to information from your records. You may also use the IRS’s collection standards. This is a set of standards that outline what the IRS believes you should be spending on living expenses. Some are nationally based, while others are locally calculated.

How to Dispute Information From Your OIC Rejection Letter

The way you dispute information from the rejection letter varies based on the type of information. To give you a sense of the process, we’re going to cover several different examples of common elements that you may need to highlight when appealing your rejection.

Incorrect Income or Expenses Numbers

Imagine that the IRS noted an income or expense number that doesn’t match your records. When you appeal your OIC rejection, you will note the income or expense amount shown on the IET. Then, you will note your actual income or expense amount, and you will provide documents to support your claim.

Disagreement With the Value of an Asset

If you disagree with the value of an asset shown on the AET, you should provide information about the fair market value of the asset and any loans against it.

For instance, say that you disagree with the value the IRS assigned to your vehicle. You can use trade association guides or ads from car dealerships to establish a different fair market value. Then, you should also send in your loan documents to show how much you owe on the vehicle.

With most assets used to calculate the OIC minimum offer amount, the IRS uses a quick sale number. This is the number shown on the AET, and you will use this number when making your appeal.

The quick sale number is typically 80% of the asset’s fair market value minus the amount owed against the asset. However, the IRS uses slightly different calculations for some assets. You can consult with the OIC application instructions to see the calculations for various types of assets, or you can contact a tax professional.

More Information About Special Circumstances

You don’t necessarily have to pay the minimum offer amount. The IRS realizes that there are special circumstances that can prevent someone from paying that amount. Remember the minimum amount is based on the equity in your assets and your future disposable income.

If your disposable income is going to change soon, that may warrant the IRS to consider a lower offer. Perhaps you have special circumstances that prevent you from liquidating certain assets. Maybe you have a terminal illness, advanced age, or another serious concern. These can all be examples of special circumstances that may affect your offer.

When you applied for the offer in compromise, you should have outlined your special circumstances. If you didn’t or if you provided less information than you should have, the appeal is your chance to explain more about your situation. Again, for best results, you may want to work with a tax professional. They are accustomed to dealing with the IRS offer in compromise program, and they can help you through the appeals process.

Other Options When the IRS Rejects Your Offer in Compromise

If the IRS rejects your offer in compromise and you agree with the rejection, you need to make arrangements for your tax liability. Typically, if the IRS has rejected an offer in compromise, you also won’t be able to obtain hardship status. However, you may be able to set up an installment plan to make monthly payments on your tax liability. If applicable, you may also be able to apply for programs such as innocent spouse relief or penalty abatement.

How Many Offers in Compromise Does the IRS Reject?

The IRS rejects the majority of offer-in-compromise applications. For example, in 2021, almost 50,000 taxpayers applied for an offer in compromise, and the IRS accepted just over 15,000 offers. This is less than a third of the total applications.

This was a particularly low year for offer-in-compromise approvals. In fact, it was the year with the lowest percentage of approvals in the last decade. In most years, approvals tend to hover around 40%. They have not reached 45% at any point in the last 10 years.

This doesn’t mean that you shouldn’t apply for an offer in compromise. It just means that you should consider working with someone who understands the program. The IRS writes off millions in tax debt through this program every year. When you hire an experienced tax attorney to help you, they can let you know if you have a likelihood of getting approved for this program. Then, they can help you apply. If applicable, they can steer you toward another tax resolution option.

Get Help With an Offer in Compromise Rejection

Did you apply for an offer in compromise that was rejected? Do you want to appeal? Curious about other tax relief options? Just starting to think about an offer in compromise and want help to reduce your chance of rejection? In all of these situations, you need a tax professional.

At The W Tax Group, we focus on helping taxpayers resolve their IRS tax problems. Regardless of the issue concerning you, the dedicated tax lawyers we employ can provide you with the individualized attention and expertise that you need. To get help now, contact us today.