That moment when you receive a denial for an Offer in Compromise (OIC) application is always distressing since it involves hopeful tax relief. It simply means you are not out of options. You can make several moves to attend to this situation and further your search for options, such as an IRS Installment Agreement or other forms of tax relief. In this article, we will take you through what the most common reasons for OIC denials are, what steps you should do next, and the other IRS tax relief options that are available.
1. Common Reasons for Offer in Compromise Denials
The IRS is very strict as to whom they allow Offer in Compromise applications. In fact, only a small portion of OIC applications ever get approved. The following are some common reasons for an OIC denial:
- <H3>Inability to Prove Financial Hardship: The IRS will reject your Offer in Compromise if it determines that you can pay your tax debt through other means, such as a payment plan or by liquidating assets.
- <H3>Incomplete Application: Filing an incomplete OIC application or failing to provide sufficient documentation, including proof of income and expenses, may result in the denial of an application.
- <H3>Filing Errors: The most mundane mistakes in your application, such as incorrect personal details or miscalculated financial data, can get it turned down.
- <H3>Non-Compliance: If you have not filed your taxes or paid all of your estimated taxes, the IRS will reject your OIC application.
- <H3>Low Offer Amount: If your offered amount is too low compared to your financial status and what the IRS believes you possess in value, this could easily be refused.
Understanding these common triggers will allow you to better position yourself for your next course of action and, when appropriate, rectify the problem when appealing or applying for alternative relief.
2. Steps to Take Once Your OIC Has Been Denied
If your Offer in Compromise is denied, there’s nothing to get anxious about. Instead, there are a number of things you can do, including:
- <H3>Denial Letter: The IRS will give you an explanation as to why they denied your OIC. Read the letter carefully so that you accurately identify just why it was rejected.
- <H3>Review Your Financial Situation: Reevaluate your financial situation; the IRS may believe that you can pay the full tax debt or, at the very least, handle it via an Installment Agreement.
- <H3>Seek Professional Advice: Consult a tax professional—a specialist in Offer in Compromise, for instance—who can review the case and advise why the IRS rejected the offer. This will enable them to recommend the best option in your unique case.
Once you have done your analysis, you may want to proceed with an appeal or explore other options that may be available, such as the Installment Agreement.
3. Appealing a Rejected Offer in Compromise
If you feel that your application for an Offer in Compromise was wrongly denied, you can appeal it. Here is how:
- <H3>File Form 13711: This is an official “Request for Appeal of Offer in Compromise.” You have to file this within 30 days of receiving your notice of rejection from the IRS.
- <H3>Additional Financial Information: If you have supplementary or updated financial information not covered under your original application, this is the time to present it. For example, if your financial situation has deteriorated, attach the evidence to prove this assertion.
- <H3>Explain Your Case: Clearly state why you feel the denial was incorrect. Outline any mistakes made by the IRS or further explain why you are unable to pay the full tax debt.
- <H3>Meet with a Tax Professional: An appeal can be complicated to handle. Having a specialist in an Offer in Compromise or a tax attorney will greatly increase your chances for a successful appeal.
4. Considering an IRS Installment Agreement as an Alternative
One of the best options available, if your Offer in Compromise is denied, includes setting up an Installment Agreement with the IRS. This allows you to pay off your debt in affordable monthly payments over time, providing you with ease toward your financial responsibilities without having to make any one-time payment.
5. How to Set Up an Installment Agreement
Setting up an Installment Agreement is often much easier than going through the OIC process. Here’s how you can do it:
- <H3>Determine Your Eligibility: Most taxpayers who owe less than $50,000 in back taxes are able to apply for an Installment Agreement online. If your debt is more than this amount, you may still be eligible, but you will need to submit additional forms, such as Form 9465.
- <H3>Apply Online: The process for applying for an Installment Agreement for debts below $50,000 is relatively simple through the IRS website. You will be required to provide information on your income, expenses, and the amount you can make per month in payments.
- <H3>Choose Your Payment Plan: Most often, you will have two options: a short-term payment plan of 120 days or less, or a long-term plan that makes monthly payments over a longer period. Choose one that best suits your budget.
- <H3>Automatic Payments: It is easy to never miss a payment by having automatic withdrawals set up through your bank account. That way, you will not need to face additional fees and penalties.
An Installment Agreement may not reduce the amount of debt you owe, but it might ease the burden of making very hefty monthly installments, saving you from the aggressive IRS collection actions such as wage garnishment.
6.Other IRS Tax Relief Options
Apart from the Installment Agreement, here are a few other IRS tax relief programs you can utilize if your OIC is denied:
- <H3>Currently Not Collectible Status: In case of extreme financial hardship, the IRS could give temporary reprieve from collection efforts under CNC status. Although the interest and penalties will continue to build up, you are not compelled to pay any sum during this period until your financial situation gets better.
- <H3>Partial Payment Installment Agreement: In some cases, the IRS will accept smaller monthly payments that don’t fully pay the tax debt. It works like a regular Installment Agreement, except with smaller payments.
- <H3>Innocent Spouse Relief: If your tax debt is based upon your spouse’s action(s) or inaction, you may be entitled to innocent spouse relief, which would relieve you from debt and responsibility.
The following are options you might want to consider, but only with the assistance of a tax professional who can take you through the pros and cons for each of these programs.
7.Stopping Future Tax Issues
When you have resolved your current tax debt, it is critical that you go the extra mile in ensuring such issues do not happen again in the future. You may consult with tax professionals offering tax planning services. With this service, you will be assisted in:
- <H3>Plan for future payments: If you happen to be in self-employment or receive income that is not regular, it may be prudent to set aside money for estimated tax payments so that you may avoid underpayment penalties.
- <H3>Understand Deductions: A tax planning professional helps in maximizing deductions and available credits that may lower your overall tax liability.
- <H3>Avoid Future Debt: Pro-active tax planning services ensure that you remain compliant with IRS regulations and avoid future tax debt.
Conclusion
As mentioned, in case your Offer in Compromise is denied, well, that is not the end of the road. You can still settle your tax debt by understanding why your application was rejected, filing an appeal, or seeking an alternative like Installment Agreement. You may ensure never to face any similar problem with the help of Offer in Compromise specialists and tax planning services. The quicker and more consciously you treat your tax problem, the smoother your financial future will be.
