My OIC was Rejected. Now What?

Receiving a rejection notice for your Offer in Compromise (OIC) from the IRS can be nerve-racking. But remember, there are still proactive solutions to explore for your tax debt.

First, understand the situation, then take the right steps. 

Why Was My OIC Rejected?

According to the IRS Delinquent Collection Activities Report, approximately 63.5% of OICs were denied in 2022, and 57.9% in 2023. That might seem discouraging, but a rejection is not the end of the road. Instead, it signals that something needs to be adjusted to improve your chances of approval. 

1. The IRS Believes You Can Afford to Pay More

The IRS calculates your Reasonable Collection Potential (RCP) based on your income, assets, and expenses. If they determine that it is higher than your offer, they may reject your application.

How to fix it:

• Recalculate your offer using the IRS Offer in Compromise Pre-Qualifier Tool.
• Review your expenses to ensure they align with IRS allowances.
• If your financial situation has changed (job loss, medical expenses, etc.), gather proof and request reconsideration.

2. Incomplete or Incorrect Paperwork

The IRS enforces strict documentation requirements. Even minor errors (such as missing signatures, incorrect financial details, or incomplete forms) can lead to an automatic rejection.

How to fix it:

• Double-check all forms before submitting.
• Ensure every financial document is accurate and up to date.
• Consider hiring a tax professional to review your application.

3. IRS Compliance Issues (Past Tax Filings & Payments)

The IRS will not accept an OIC if you have unfiled tax returns or are not making estimated tax payments (if required). Your account must be in good standing before they will even consider your offer.

How to fix it:

• File all missing tax returns before applying.
• If you are self-employed, make sure you have paid your estimated quarterly taxes.
• Stay current on tax obligations to avoid future issues.

4. Financial Changes Since You Filed Your OIC

If your financial situation improves after you submit your offer, the IRS may reject your OIC based on your new ability to pay. This can happen if you receive a raise, inherit money, or acquire property.

How to fix it:

• If your financial situation changes, notify the IRS immediately and update your offer before they reject it.
• Consider an Installment Agreement as an alternative to settling your tax debt.

Returned vs. Rejected OIC: What is the Difference?

Many taxpayers confuse a returned Offer in Compromise (OIC) with a rejected one. While both mean the IRS did not accept your offer, they happen for different reasons and require different next steps. 

What happens when an OIC is returned?

A returned OIC means the IRS did not even consider your offer because of a compliance issue. This could happen if:

• You failed to file all required tax returns before submitting the OIC.
• You did not make the necessary estimated tax payments for the current year.
• Your application was incomplete, missing documents or required fees.

What to do next

• Fix the issue (e.g., file missing tax returns, pay estimated taxes).
• Resubmit your OIC once you are in compliance.
• Act quickly. If you delay, collection efforts (such as wage garnishments or liens) may resume.

Important: A returned OIC does not trigger an appeal right because the IRS never evaluated your financial situation. You must resolve the compliance issue before trying again.

What happens when an OIC is rejected?

A rejected OIC means the IRS reviewed your offer but determined that you can pay more than what you proposed. The rejection typically occurs when:

• The IRS believes your income, assets, and expenses show you can afford to pay more.
• Your offer was too low compared to your RCP.
• The IRS disagrees with your financial disclosures or finds inconsistencies in your application.

What to do next

• Appeal the decision within 30 days by submitting Form 13711 (Request for Appeal of Offer in Compromise).
• Submit a new offer with revised financial information if your situation has changed (e.g., reduced income, new medical expenses).
• Explore other tax relief options like an Installment Agreement or Currently Not Collectible (CNC) status if an OIC is no longer viable.

Type	Meaning	What to Do Next?
Returned OIC	IRS will not review due to compliance issues.	Fix errors (e.g., file missing returns), then resubmit.
Rejected OIC	IRS reviewed but deemed the offer too low.	Appeal or submit a stronger offer.

Steps to Take If Your OIC is Rejected

Step 1: Appeal the OIC Rejection (If Applicable)

If you believe the IRS made an error in assessing your offer, you have the right to appeal the decision within 30 days of receiving the rejection notice.

How to File an Appeal

To appeal, submit Form 13711 by explaining why you disagree with the IRS’s decision. Supporting documentation, such as updated financial records or proof of changes in your income, can strengthen your case.

Appealing may be a good option if:

• The IRS miscalculated your assets or ability to pay.
• You recently lost income or faced unexpected financial hardship.
• The IRS did not properly consider your special circumstances (e.g., medical expenses, job loss).

However, if your rejection was based on a low offer that clearly did not match your financial situation, an appeal is unlikely to succeed. Instead, consider revising and resubmitting a stronger OIC.

Pro Tip: Even if your appeal is denied, it can buy you extra time before the IRS resumes aggressive collection actions.

Step 2: Reevaluate and Submit a Stronger Offer

If appealing is not the best path, consider changing your offer and submitting a new OIC with a higher chance of approval.

How to Strengthen Your New OIC

Update your financial disclosures
If your income has decreased, or you have gained new expenses (like medical bills or dependents), updating your financial forms can show a more accurate picture of your ability to pay.

Determine a realistic offer amount
A common reason for rejection is submitting a low offer. The IRS will typically only accept an OIC if the amount equals or exceeds what they believe they can collect from you over time. A tax professional can help you calculate a reasonable offer that meets IRS standards.

Step 3: Explore Alternative Tax Relief Options

If your OIC is not the right solution, there are other ways to resolve your tax debt. Depending on your financial situation, you may qualify for:

Installment Agreement (IA)

A structured payment plan where you pay off your tax debt in monthly installments. This option prevents IRS enforcement actions like wage garnishment.

Best if: You can afford to make monthly payments but cannot pay in full right away.

Currently Not Collectible (CNC) Status

If you are experiencing financial hardship, you may qualify for CNC status, meaning the IRS temporarily halts collection efforts.

Best if: You cannot afford to make any payments due to low income or high expenses.

Penalty Abatement

If IRS penalties have made your tax debt unmanageable, you may request penalty relief due to reasonable cause (e.g., medical emergency, natural disaster).

Best if: A significant portion of your balance is due to IRS penalties.

Bankruptcy (Last Resort Option)

Some tax debts can be discharged through bankruptcy, but eligibility depends on specific IRS rules. It is advisable to consult a tax attorney before considering this path.

Best if: Your debt is severe, and other tax relief options will not work.

Should You Work with Professional Assistance?

Consider expert help if:

• You are unsure how to calculate your collection potential.
• Your financial situation is complex (e.g., business income, self-employment).
• You do not want to risk another rejection.

Precision Tax can provide invaluable guidance and support in navigating the IRS appeals process, submitting new OIC applications, or exploring other relief avenues. 

Need expert guidance? Contact us today for a free consultation.

How to Avoid an OIC Rejection Before You File

The IRS has strict guidelines, and understanding them before you submit your offer can save you time, stress, and money. Here is how to improve your chances of approval.

1. Know Your Reasonable Collection Potential (RCP)

Use these ways to check your RCP before applying:

• Use IRS Form 433-A (OIC) to estimate your RCP.
• Include all allowable living expenses based on IRS Collection Financial Standards (not just what you actually spend).
• Accurately report the value of assets like real estate, vehicles, and retirement accounts.
• If your calculations show you can pay the full tax debt through installments, your OIC will likely be rejected.

Pro Tip: Work with a tax professional to ensure your RCP aligns with IRS expectations before submitting your offer.

2. Ensure IRS Compliance Before Applying

Your OIC will not even be reviewed if you are not in compliance with IRS rules. The IRS automatically returns offers from taxpayers who have not met basic filing and payment requirements.

Before submitting an OIC, make sure that:

• All required tax returns have been filed.
• Estimated taxes for the current year are paid (if self-employed).
• Payroll taxes are current (if you own a business).
• You have not defaulted on a previous OIC.

Real-World Solutions with Precision Tax

At Precision Tax, we’ve helped thousands of taxpayers turn rejected offers into real solutions. With over 79,000 successful cases, our team knows what works and what does not when dealing with the IRS.

A rejection does not mean you are out of options. It simply means your next steps matter more than ever. Whether it is filing an appeal, restructuring your offer, or exploring alternative tax relief programs, we guide you through every stage with clear, practical strategies. Our approach is rooted in experience, data, and a commitment to getting results.

• A properly structured offer has a much higher chance of acceptance.
• Many taxpayers qualify for alternative relief options they may not be aware of.

We do not believe in one-size-fits-all solutions. Every tax situation is unique, and so is our approach. That is why we are here to ensure you get the best possible outcome.

Contact us today for a free consultation and take the first step towards resolving your tax issues with confidence.