My Offer in Compromise was denied by the IRS as a Full Pay; Why?
Rejected OIC- Do not qualify for an Offer- Considered Full Pay
We received a chat from a nice young lady asking why her Offer in Compromise was denied. I gave her a call and asked her to read me the rejection letter. The IRS had denied her Offer as a full pay. We went through her financial situation. She owed $77K to the IRS, has a disposable income of $350/month, $155K in a 401K and was age 29. First of all, I said congrats on the 155K in your 401K. Most people do not begin to save until much later in life. She said both her parents had encouraged her to contribute starting with her first job at age 17. I also told her the 401K was the reason she was denied. The IRS discounts a retirement plan at 70% and allows for the taxes that have to be paid. Even with these discounts, she was still considered a full pay. We were able to enter her into a Partial Pay Installment Agreement and with her disposable income, this may turn out to be a good solution. At 350/month over the remaining 8-year Statute of Limitations, she will pay approximately $33,600.
The following are the most common reasons for denial of an Offer in Compromise:
- Failure to maintain compliance by making estimated payments
- Missing information
- Failure to disclose assets
- Failure to maintain compliance due to outstanding returns
- Active Bankruptcy
- Frivolous submissions
- Failure to pay the processing fee unless below a specific income level
- Failure to maintain compliance in the 5-year look-forward period
- Failure to make the non-refundable payment with the application
- Default on a previously accepted Offer
- Do not qualify for an Offer- Considered Full Pay
- Living expenses are considered excessive
- Dissipation of assets
This is item 11, Do not qualify for an Offer- Considered Full Pay
Should you get help?
I have seen many people try to prepare their own OIC and fail because they do not fully understand the art of dealing with the IRS. Yes, you can submit an Offer in Compromise yourself but if you are trying to considerably reduce your debt, I recommend you rethink your position.
An “accepted” OIC is not the same as a “successful” OIC.
There is more to it. Sure, the average taxpayer can fill out the forms and after spending hours reading and rereading the instructions provide the substantiation needed for an application to be accepted. How do you measure success? To me, success is measured with an approval on the LOWEST DOLLAR AMOUNT the IRS will accept.
If you feel that you may be in over your head, or just want to get a second opinion, let’s set up a short call. To avoid the back and forth emails and phone tag, I have included a link to my Calendar https://calendly.com/taxman/tax-problem-resolution-initial-consultation. Let’s set up a 30 min. phone conference to get to know each other. The phone number to call is 855-829-5877 and my extension is 203.