My Offer in Compromise was denied by the IRS for compliance reasons; Why?
Rejected OIC- Do not qualify for an Offer- Considered Full Pay
I received a phone from a lady asking why her Offer in Compromise had been denied. I asked her to read me the rejection letter. The IRS had denied her offer because they said she had an outstanding tax on a recent return. I asked her, 1) Have you filed all required returns? 2) Are you making the required estimated payments that would have you breaking even on your next return? To the first she answered Yes, to the second she answered NO. I asked her why she was not making estimated payments. She said she could not afford to do so. I said, you cannot afford not to and, frankly, if you do not you will never get an offer approved. I said, think about it, why would the IRS settle a debt when they already know you are likely to have a new debt. Even if they did accept your offer, one of the conditions of having an offer accepted is you CANNOT owe the IRS for the five years post the acceptance.
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 application 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 – Considered Full Pay
- Dissipation of assets
This is item 1, Failure to maintain compliance due to estimated tax payments.
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.