Have you ever been in a situation where you owe taxes to the IRS, but you don’t have the funds to pay them? It can be a stressful and overwhelming situation. Fortunately, the IRS offers an Offer in Compromise (OIC) program that can help taxpayers reduce their tax debt.
An Offer in Compromise is an agreement between the taxpayer and the IRS that allows the taxpayer to settle their tax debt for less than the full amount owed. It can be a great way to reduce the amount of taxes you owe and get out of debt.
Unfortunately, the IRS does not accept every Offer in Compromise. If your Offer in Compromise is rejected, it can be a difficult and confusing situation. It is important to understand what happens if your Offer in Compromise is rejected and how you can move forward.
At Creative Advising, we are certified public accountants, tax strategists, and professional bookkeepers. We understand the complexities of tax debt and can help you understand what happens if your Offer in Compromise is rejected. In this article, we will discuss the consequences of a rejected Offer in Compromise, how to appeal the decision, and other options for reducing your tax debt.
Reasons for Offer in Compromise Rejection
An Offer In Compromise (OIC) is an agreement made between the taxpayer and the IRS to settle the taxpayer’s tax debt for less than the full amount due. The IRS carefully reviews each proposal and may reject it if it does not fully meet the necessary criteria or they do not believe that the taxpayer can fully pay the amount offered. If an Offer in Compromise is rejected, it is important to understand the reasons for the rejection in order to decide if it can be avoided in the future.
The types of reasons for Offer in Compromise rejection can usually be broken down into technical and financial reasons. Examples of technical reasons include failure to include information or documentation required by the application process or failure to sign the agreement. On the other hand, financial reasons for rejection include offering an amount that is too low or overestimating the amount of assets or expenses. Financial reasons also include failure to cooperate with the IRS or not currently filing tax returns.
It can therefore be determined that the primary reasons for an Offer in Compromise to be rejected are inadequate financial information, lack of full disclosure, or offering an amount too low for the IRS to accept.
What happens if my Offer in Compromise is rejected? If your Offer in Compromise is rejected, you will be sent a notice outlining the reasons it was rejected and the option to appeal the decision. You can appeal the rejection within 30 days of the date the notice was issued, and the department that issued the rejection will review your proposal again. If you do not appeal the decision, the full balance of the tax debt will remain due. If an appeal is unsuccessful, you will have the option to pay the full balance due or explore other alternatives to managing your debt, such as a payment plan, credit counseling, or loan consolidation.
Appeal Options After Offer in Compromise Rejection
When your offer in compromise is rejected by the IRS, don’t despair. You may have the option to appeal the decision if you believe it was an error or that you weren’t given due process. As Tom Wheelwright, Certified Public Accountant, Tax Strategist, and professional bookkeeper recommends, if your offer in compromise is rejected, you should confidently explore your appeal options as your first step.
The IRS has a clearly defined appeals process which should be followed in order to review the original decision made. You would pay a filing fee to submit an appeal, however, if you are accepted as someone with a low income or unable to pay the fee, the IRS will waive this fee for you. When you submit an appeal, the IRS will review the evidence presented before making a final decision. It may be the case that a different IRS agent or office re-evaluates your situation and makes a different decision.
What happens if my offer in compromise is rejected?
If your offer in compromise is rejected by the IRS, the IRS will continue to process a collection action against you, depending on your financial situation and the amount you owe. You still have options through a payment plan, installment agreement, or penalty abatement, but your opportunities may not be as advantageous as having an offer in compromise accepted. As Tom Wheelwright highly recommends, you should talk with an experienced tax advisor or Certified Public Accountant’s office to carefully discuss your options and how to build a strategy to successfully appeal the decision.
Possible Alternatives to Offer in Compromise
At Creative Advising, we always recommend clients seek alternatives to an Offer in Compromise. An Offer in Compromise (OIC) is an agreement between the taxpayer and the IRS wherein the taxpayer agrees to settle their tax bill for less than the full amount owed. It’s not the best option for everyone, though.
Fortunately, there are several alternatives available. One option we suggest is called an Installment Agreement. Individuals with low incomes or limited assets, or whose total tax debt is low, can often pay off their tax liability in monthly or biweekly payments.
If you are unable to afford payments through an Installment Agreement, you may be eligible for additional IRS hardship programs. The Currently non-collectible status asks the IRS to temporarily cease or suspend collection of tax debt that causes a taxpayer financial hardship.
Taxpayers with liens on their homes may qualify for a lien withdrawal. This part of the process includes releasing the federal tax lien, which removes the public record of the unpaid tax debt.
A partial pay installment agreement and a settlement can also provide an alternative to the Offer in Compromise. The partial pay installment agreement allows a taxpayer to pay off their IRS debt over time without having to secure a loan. An IRS settlement is a one-time lump sum payment that offers a route to complete tax debt forgiveness.
What happens if my offer in compromise is rejected?
At Creative Advising, we understand the process of amending and appealing an Offer in Compromise rejection can be long and complex. If your Offer in Compromise is rejected, the IRS should send you a letter with the reasons for its rejection.
When this happens, you have two options: you can either accept the rejection or challenge the IRS decision. If you choose to challenge an Offer in Compromise rejection, you’ll have to go through the administrative appeals process. During this process, you’ll submit additional information to the IRS and defend your offer with reasons for why it should be accepted.
The appeals process can take several months. If your Offer in Compromise is still rejected upon appeal, the IRS will proceed with the collection of the total tax debt. Ultimately, if you are unable to pay your tax debt, you may need to consider other alternatives like an installment agreement, lien withdrawal, or filing a bankruptcy.
Effect of Offer in Compromise Rejection on Tax Liability
When an offer in compromise (OIC) is rejected, your tax liability will remain the same and you will be responsible for the full amount. A rejection of an OIC often occurs due to discrepancies between taxpayer reported income and expenses versus what the IRS believes to be a reasonable amount. The rejection of the OIC does not generally impact your credit or collection activities, but some taxpayers may receive a Notice of Determination letter outlining the reasons for the rejection and notifying them of their collection options.
In the event your OIC is rejected, you will need to continue repaying the tax debt in accordance with the terms of the installment agreement if that was an option available to you. If you do not have an installment agreement in place, the IRS will continue using its collection activities such as liens, levies, and other payment arrangements to collect the tax debt.
It is important to note that you can request a hearing with IRS Office of Appeals if you disagree with the rejection. This request must be made within 30 days of the date of the rejection letter. The IRS Office of Appeals will review the offer to determine if an alternative resolution can be reached. Tom Wheelwright, CPA recommends meeting with a tax professional to discuss the offer and have them review any supporting documentation and/or the rejection letter. They can also offer alternative solutions or suggestions to avoid an offer rejection in the future.
What happens if my offer in compromise is rejected?
When your OIC is rejected your tax liability remains the same and you will be responsible for the full amount. An appeal must be filed within 30 days of the rejection letter if you do not agree with the reasons listed. An experienced tax professional can help review the rejection letter and discuss potential alternative solutions for avoiding a rejection in the future. Additionally, the IRS will use liens, levies, or other payment arrangements to collect the tax debt if an installment agreement is not in place.
Preparing for Future Offers in Compromise and Avoiding Rejection
It is important to get your Offer in Compromise right the first time, as if it is rejected, it can leave you in an even deeper financial hole due to penalties, interest, and fees. The first step to avoiding this situation is to work with reputable tax professionals who are experienced in filing Offers in Compromise. These professionals can ensure that your Offer in Compromise is complete, correct, and packaged in a way that maximizes its chance of being accepted. Additionally, it is important to submit the Offer in Compromise in advance of the deadline, as this can help you to ensure that all of the necessary information is included in the offer before it is sent.
Filing an Offer in Compromise can be a complex process, so it is crucial to have all of the required financial information prepared and organized. This means that you should have documentation of your current income, expenses, assets, and liabilities. This is so essential because the IRS will look at your financial situation in order to determine whether or not they will accept the offer in compromise. Additionally, you should also be sure to have all of the necessary supporting documents in hand, such as a financial statement, to help support your case.
What happens if my offer in compromise is rejected? If your Offer in Compromise is rejected, the IRS will not immediately come after you to collect the taxes that were negotiated in the Offer. They will, however, require you to pay the applicable accrued penalties, interest, and fees associated with the taxes due. It is important to note, however, that you can appeal the decision if you feel that the offer was rejected in error. Additionally, if your financial situation has changed, you may be able to re-file another Offer in Compromise with new or updated information. You may also want to consider other alternatives to the Offer in Compromise such as an installment agreement, Currently Non-collectible Status, or even an Innocent Spouse Claim, depending on your circumstances.
“The information provided in this article should not be considered as professional tax advice. It is intended for informational purposes only and should not be relied upon as a substitute for consulting with a qualified tax professional or conducting thorough research on the latest tax laws and regulations applicable to your specific circumstances.
Furthermore, due to the dynamic nature of tax-related topics, the information presented in this article may not reflect the most current tax laws, rulings, or interpretations. It is always recommended to verify any tax-related information with official government sources or seek advice from a qualified tax professional before making any decisions or taking action.
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Please consult with a qualified tax professional or relevant authorities for specific advice tailored to your individual circumstances and to ensure compliance with the most current tax laws and regulations in your jurisdiction.”
