You may have been told that an Offer in Compromise (OIC) is a way out of a difficult tax situation. This point is true in theory, but it is not always practical. The IRS makes the final decision about whether to accept your OIC, and they are not always willing to do so. A New York tax lawyer at the Thorgood Law Firm can help you explore your options if your OIC has been rejected.
The IRS Does Not Have to Accept Your OIC
The IRS can agree to your OIC at its own discretion. The agency has its own reasons why it may or may not come to an agreement with you. In some cases, the IRS wants to get whatever money they can from you because they know that it will be far more difficult to collect years from now, especially if you have filed for bankruptcy protection. The IRS is like any other creditor that must act strategically in its own interests.
While it is not impossible to reach a deal with the IRS, it is certainly getting much harder. There is nothing in the law that requires the IRS to accept your OIC. They are acting well within their authority if they choose to reject it. Nevertheless, the IRS is willing to work with certain taxpayers based on the agency’s considerations and the taxpayer’s individual circumstances.
In recent years, the IRS has been less willing to accept an OIC. In Fiscal Year 2023, the agency accepted almost half of the OICs made by taxpayers. In FY 2024, the acceptance rate has fallen dramatically to just over 20 percent. Some of the reasons for the drop relate to the agency using stricter standards to review these applications. The fall in approvals can also be due to the fact that the taxpayer has filed incomplete or unsupported documentation (which are circumstances that you will not be in if you hire a New York tax lawyer to represent you).
You Cannot Sue, But You Can Seek Reconsideration
Although you have options if your OIC was rejected, the one thing that you cannot do is sue the IRS in court over their decision. An OIC is discretionary, and it is not a form of relief that the IRS must grant in every circumstance. The only way that you can seek any type of judicial review of the rejection is if it occurred during a collection due process hearing. Other than that, there is no jurisdiction to get your case into court. At this point, you must decide whether you will file another type of challenge with the IRS or try to find other ways to work with the agency if you cannot afford to pay your tax debt.
There are several ways that you can seek a review of the IRS decision. If the agency rejected your OIC because it was insufficiently documented, you can resubmit a new request that contains additional paperwork that may address the IRS’s concerns. The updated financial information can be enough to persuade the IRS to revisit its decision.
Another way to seek review of a denied OIC is to file a Request for Reconsideration. This request is submitted to the IRS, and it may contain information that addresses the IRS’s concerns or attempts to persuade the agency that it incorrectly rejected your initial request. Although filing a Request for Reconsideration may not hurt, it is rare that the IRS will overturn its initial decision. You can also file an appeal internally with the IRS Independent Office of Appeals.
You can also find another way to take on the IRS legally, but it is relatively rare in OIC cases. If the IRS claims that you owe money, you can always pay the tax debt. Then, if you believe that the IRS was incorrect in the amount of taxes that it was assessing, you can go to Tax Court and sue for a refund. However, you may not have the money to pay, and that is the reason why you are making an OIC.
You Can Work with the IRS to Explore Other Solutions
There are still other ways that you can work with the IRS to address your tax debt. If the IRS will not yield on the amount of money that you owe, it may be possible to agree to an installment plan with the agency. Of importance, you will gain additional time to pay what you owe, and you will be free from the threat of enforcement action so long as you make the payments required by the plan. Still, you will be obligated to pay all penalties and interest, unless you can get the IRS to agree to a penalty abatement.
Another way to address your situation is to seek to have your account placed in a non-collectible status due to hardship. Even if you are successful here, you will still need to pay the full amount of money that you owe at some point, since the IRS has rejected your OIC.
One of the best things that you can do is to hire a New York tax attorney before you make an OIC to the IRS. A tax lawyer can help you compile a persuasive and well-documented request that can help you avoid some of the pitfalls that others might face. They can also communicate with the IRS on your behalf and present your strongest possible case for why the agency should accept your OIC.
Speak to a New York Tax Lawyer
If you are facing a difficult tax situation, you can rely on a New York tax lawyer at the Thorgood Law Firm for help. The first step that you should take to address your circumstances is to schedule a free initial consultation with one of our tax attorneys, which you can do by messaging us online or by calling us today at (212) 490-0704.
Frequently Asked Questions About IRS Offer in Compromise Rejections
- What is an Offer in Compromise?
An Offer in Compromise (OIC) is a program that allows taxpayers to settle their tax debt with the IRS for less than the full amount owed. The IRS may accept an Offer in Compromise when it believes that the taxpayer cannot reasonably pay the full tax liability through normal collection methods.
The program is designed for taxpayers experiencing financial hardship or situations where collecting the full tax debt would be unlikely. Many individuals and businesses in New York pursue this option when dealing with large IRS tax debts. Because the application process is complex and requires detailed financial disclosures, taxpayers often work with a tax attorney in NYC when preparing an Offer in Compromise submission.
- Why does the IRS reject an Offer in Compromise?
The IRS rejects many Offer in Compromise applications each year. One of the most common reasons for rejection is that the IRS determines the taxpayer has the ability to pay more than the amount offered.
Other common reasons an OIC may be rejected include:
- The taxpayer failed to provide required financial documentation
• The offer amount is lower than the IRS calculation of “reasonable collection potential”
• The taxpayer is not current on filing required tax returns
• Estimated tax payments or payroll deposits are not up to date
• Errors were made in completing the application forms
Because the IRS carefully analyzes a taxpayer’s financial condition before making a decision, having guidance from a tax attorney in New York City can significantly improve the chances of submitting a strong application.
- What happens after the IRS rejects an Offer in Compromise?
If the IRS rejects an Offer in Compromise, the tax debt does not disappear. The IRS will resume normal collection activity, which may include:
- Federal tax liens
- Wage garnishments
- Bank levies
- Seizure of assets in serious cases
However, taxpayers still have options after a rejection. The IRS allows taxpayers to appeal the rejection or explore other tax resolution alternatives.
A knowledgeable tax attorney NYC taxpayers rely on can evaluate the IRS decision and determine the most appropriate next step.
- Can you appeal a rejected Offer in Compromise?
Yes. Taxpayers generally have 30 days to appeal an Offer in Compromise rejection after receiving the IRS decision letter.
The appeal is filed using Form 13711, Request for Appeal of Offer in Compromise. During the appeals process, the case is reviewed by the IRS Independent Office of Appeals, which is separate from the division that initially rejected the offer.
The Appeals Office may:
- Reverse the rejection and accept the offer
- Request additional documentation
- Propose a different settlement amount
Because appeals often involve complex financial analysis and negotiation, many taxpayers seek help from a tax attorney in NYC experienced with IRS settlements.
- Can you submit another Offer in Compromise after a rejection?
In some cases, taxpayers may submit a new Offer in Compromise after a rejection. However, the IRS will expect to see a significant change in financial circumstances before reconsidering another offer.
Examples of changes that may justify a new offer include:
- Loss of employment or income
- Medical hardship
- New financial obligations
- Changes in asset values
A New York tax attorney can help determine whether submitting a new offer is worthwhile or whether another tax resolution strategy would be more effective.
- What other options are available if an Offer in Compromise is rejected?
If the IRS rejects an Offer in Compromise, taxpayers may still qualify for other forms of tax relief.
Common alternatives include:
Installment Agreements
A payment plan that allows the taxpayer to pay the tax debt over time.
Currently Not Collectible Status
If the taxpayer cannot afford to make payments, the IRS may temporarily suspend collection activity.
Penalty Abatement
In some cases, penalties may be reduced or removed, lowering the total amount owed.
An experienced tax attorney in New York City can review the taxpayer’s financial situation and determine which option offers the best path forward.
- Does a rejected Offer in Compromise increase the risk of an IRS audit or investigation?
In most cases, a rejected Offer in Compromise does not automatically trigger an IRS audit or criminal investigation. However, the IRS does review financial disclosures submitted with the OIC application.
If the IRS believes that the information provided is inaccurate or incomplete, it may request additional documentation or take enforcement action.
For this reason, taxpayers often consult a tax attorney NYC residents trust before submitting financial information to the IRS.
- Should you hire a tax attorney in NYC if your Offer in Compromise is rejected?
While it is possible to handle IRS negotiations on your own, professional guidance can be extremely valuable when dealing with large tax debts or complicated financial situations.
A tax attorney in NYC can:
- Review the IRS rejection and determine whether an appeal is appropriate
- Evaluate alternative tax resolution strategies
- Communicate and negotiate directly with IRS representatives
- Help protect the taxpayer’s financial interests
Because IRS collection actions can escalate quickly after an OIC rejection, seeking legal guidance early can help taxpayers regain control of the situation.