Stand Up to the IRS Blog

It’s difficult to know which way to turn once your IRS Offer in Compromise has been Denied.  We'll help you figure out what to do next.

It’s a lot easier for us to talk you through the reasons why your OIC may have been denied and help you figure out your best strategy moving forward.  There are so many variables involved that it can be nearly impossible to cover every situation in an article like this.

With that said, I’ll attempt to cover the resolution options left on the table once your OIC has been denied in writing by the IRS.

In-Business Offer in Compromise

Let’s clear up a couple of things right away.  

1. Some of you out there may still think the Offer in Compromise is a handshake deal.  It’s not.  You don’t pick a number you’d like to pay, like say $100, and offer it to the IRS as a settlement.  The OIC is complicated and often takes some finesse.  You must calculate your “Collection Potential” as the IRS sees it.  The government is interested in how much money it can collect, and they’d rather have it all now.  Since you are the one that owes them, you will have the burden of proving your inability to pay.  This involves full financial disclosure under penalties of perjury.
2. If you’ve submitted an Offer in Compromise on behalf of a Business, the likelihood of it getting accepted is low.  It’s just not a great option.  Read more.

Was Your OIC Denied or Returned?

RETURNED?

A returned OIC is different from a denied OIC.  If it was returned; you’ve either –

1. Made a mistake completing the form(s), and/or
2. Are not eligible or both.

Common reasons the IRS returns an OIC –

• Missing signature or incomplete form, 
• Missing application fee or initial payment, 
• You’re currently in bankruptcy, an open audit or submitted an Innocent Spouse Claim,
• You’re not in current tax compliance,
• You haven’t listed all your outstanding tax liability periods on form 656,
• And many other reasons

In the case of a returned OIC, you may fix the problem and resubmit your Offer.  However, I suggest also double checking to make sure that your calculated “Collection Potential” is less than your total tax liability (including penalties and interest).

DENIED?

If your OIC has been denied, an IRS Offer Specialist has reviewed it and concluded that you can pay more than you’ve offered.  This is based on the Offer Specialist’s interpretation of the information you’ve provided and the research they’ve done on you.  Their determination will be reported to you in writing with a deadline to respond.

What's your next move?

Determine whether you meet the qualifications.  The simple formula to determine whether you qualify for the OIC is -


Of course, it’s more complicated than that because… this is the IRS we’re talking about.  Once you consider the many other factors involved, it gets difficult to navigate.

• IRS’ Collection Financial Standards, 
• Production of Income Test,
• Health and Welfare of the Family Tests, 
• Quick Sale Values,
• Exemptions per the IRC, 
• Age, education, work and earnings history, health, and more

If you do feel that you meet the qualifications for the Offer in Compromise and you’re within the 30-day Appeal period, you’ve got three options.  

1. Discuss it again with the Offer Specialist assigned to your case, clarify any misconceptions and provide proof if necessary.
2. If that doesn’t work, Appeal it.  You’ll have 30-days from the denial date to request a review by IRS Appeals.  Here you get to plead your case to a new, probably more knowledgeable, Settlement Officer from IRS Appeals.  
3. Contact M&M to get a clear picture of all your options.

If you don’t qualify based on the numbers, you probably need a new solution.

What Are My OIC Alternatives?

Again, the answer to this question is easier for us to discuss over the phone.  Call us or Send us a message to get a professional opinion on the strategy that fits you best.

If your OIC was denied, and you’re not considering an Appeal because you no longer believe you qualify –
 

Full Pay

While not very appealing or even possible for most, this option can help you avoid high interest rates and penalties.  A loan or refinance to pay the taxes is an option for some.  Once the tax is paid, you qualify to request Penalty Relief.

Installment Agreement

Negotiating a monthly payment is the solution that fits most people.  There are several types of monthly Installment Agreements available through the IRS, some with more benefits than others.  When combined with a successful Penalty Abatement, it can be very effective way to both resolve and reduce your total tax debt.  See IAs Near You Negotiated by M&M

Partial Payment Installment Agreement

This Installment Agreement option is like a hybrid solution, with its core components coming from the standard Installment Agreement and the settlement opportunity of the Offer in Compromise.  See PPIAs Negotiated by M&M

Currently Not Collectible Status

If you don’t have the ability to make a monthly payment, but do have equity in an asset, such as your home, CNC status may work well for you.  If you qualify, this solution allows you to avoid making payments toward the back-taxes for a while, so long as you timely file and pay your current taxes.  See CNCs Negotiated by M&M

Penalty Abatement

The IRS is known for piling large penalties on top of the taxes that people already have a tough time paying.  If you qualify, a Penalty Abatement is a terrific way to reduce your total tax liability.Prior to requesting penalty relief from the IRS, you’ll need to secure a formal resolution to the tax liabilities.  See Penalty Relief Negotiated by M&M