A rejection from the Internal Revenue Service (IRS) can feel like the end of your attempt to settle a tax debt. In many cases, however, it is simply another stage in the process. Recognizing what your options are in this scenario allows you to prepare for what you can do going forward.
Compromise offers in context
An offer in compromise allows you to settle an assessed tax debt with the IRS for less than the full amount you owe. It is not available simply because paying your taxes is difficult. Instead, the agency bases these requests on three grounds: doubt as to collectability, doubt as to liability or effective tax administration, where exceptional circumstances make full collection unfair despite the taxpayer’s ability to pay.
Immediate steps after rejection
After reviewing the notice, you consider doing the following:
- Confirm that the IRS denied your offer rather than returned it, since only a rejection generally carries appeal rights
- Compare the IRS’s financial calculations with the information you submitted to identify any errors or missing information
- Gather document that support your position, such as bank statements, accounting records, statements or property valuations
- Submit Form 13711 or another appropriate written appeal within 30 days if you intend to challenge the decision
The 30-day deadline begins on the date printed on the rejection notice, not the date you receive it. Missing that deadline can prevent the IRS from considering your appeal.
Common grounds for denial
The notice should explain why the IRS rejected your offer. Common reasons include:
- Your offer is less than your reasonable collection potential
- Your financial information does not support your claimed inability to pay
- Your application does not account for available equity in business property, equipment, retirement accounts or real estate
Any application fee and required payments generally are not refunded after a denial. Instead, the IRS typically applies those amounts to your outstanding tax balance.
Other options for resolving your tax debt
An unsuccessful offer does not leave you without relief. Depending on your finances, you still have other IRS programs that help you manage or reduce the impact of your tax debt.
If you cannot pay the balance in full, an installment agreement might allow you to make monthly payments over time. In some cases, the IRS can approve a partial payment installment agreement or classify your account as currently not collectible if your situation does not support ongoing payments.
You also may qualify for penalty relief if you meet the requirements for reasonable cause or first-time penalty abatement. If your circumstances change later, submitting a new offer in compromise may become an option.