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The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law

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IRS Offers in Compromise: Returned Offers vs. Rejected Offers

Posted on in Internal Revenue Service

OIC, Offer in Compromise, Chicago Tax LawyersAn Offer in Compromise (OIC) is essentially a proposal to the IRS asking them to accept less than what you owe. Along with the required OIC forms, you should also submit evidence demonstrating that your offer is the most the IRS can expect to collect from you within a reasonable amount of time. When you submit an OIC, there are three possible results:

  1. Acceptance: You win! They've decided your offer is reasonable given your circumstances. This is…let's just say…"pretty rare" unless you know exactly what you're doing. Historically, offer acceptance has hovered around the 10-20 percent rate;
  2. Rejection: You lose! They've decided your offer isn't good enough; or
  3. Return: You failed! There are a number of reasons you could get a return of your offer.

If Your Offer is Rejected

This seems like pretty bad news, and it's also by far the most common result of an Offer in Compromise. There was a short time recently when OICs seemed to be a bit easier to get through the system. However–due to recent budget cuts and internal policy considerations–the IRS is getting even more (and some would say cynically) "difficult" to convince.

Rejection of an offer comes two ways:

  1. The IRS concludes that there is a "full ability to pay"; or
  2. The IRS comes back with a counter-offer of a higher, acceptable amount to compromise the debt.

Is there a path forward from here if you disagree with either these alternatives? Absolutely; there is an internal appeals process in place. Within 30 days of getting the rejection notice, you can file an appeal in which you clarify precisely why the IRS should have accepted your OIC and what specific errors in analysis they made. We regularly help clients with filing appeals for both types of rejections.

If Your Offer is Returned

OICs get returned for one of several basic reasons:

  • You didn't provide the IRS with all of the evidence/information they claim they needed to properly evaluate the offer, and you didn't correct that flaw when they sent you the 14-day "More Information Needed" letter; or
  • You've previously submitted a substantially similar offer; or
  • The IRS has decided that your offer is "frivolous", "groundless", or "made for the purpose of delaying collection."

The primary reason offers are now being returned, however, is because the taxpayer is not in "compliance", meaning he or she has not filed all his tax returns or - even more commonly - does not, in the opinion of the IRS, have sufficient tax withholdings or estimated taxes paid into the system for the current year. The IRS will absolutely not consider an OIC if there is likelihood of an additional (post-offer submission) year's unpaid liability accruing.

If your OIC gets returned, there is no appeal option. However, there is nothing preventing you from re-submitting the offer…if you can do so before active field collections begin. Immediately correct the offer and re-submit it to get another chance.

OICs can be very tricky and must be crafted a certain way to increase your chances of having the offer accepted. At Chicago-Kent Tax Clinic, we provide highly skilled low-cost assistance with IRS Offers in Compromise and all other IRS tax problems. To schedule a free consultation with one of our experienced Chicago tax attorneys, contact our office today at 312-906-5041.
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