Appealing an Offer in Compromise Rejection

A tax offer in compromise is an agreement between a taxpayer and the IRS whereby the IRS agrees to accept less than the taxpayer owes as a full settlement of the tax debt.  The IRS will only accept an offer in compromise if it believes the tax debt cannot be collected in a lump sum or in installment payments.

The IRS will reject an offer in compromise unless the offer amount is greater than or equal to the reasonable collection potential.  The reasonable collection potential is a measurement used by the IRS to determine a taxpayer's ability to pay and includes the value that can be realized on assets including real estate, vehicles, bank accounts and other property.

How to Make An Offer In Compromise

To make an offer in compromise, a taxpayer must submit a completed Form 656, Offer in Compromise, or Form 656-D, Offer in Compromise (Doubt as to Liability).  In most instances, the taxpayer must also submit either Form 433-A or Form 433-B along with Form 656, the required fee, and the first payment.  Form 656-B is a booklet that contains an offer in compromise worksheet which can be used to calculate the amount of the offer.  

Reasons for an Offer in Compromise to Be Rejected

There are three circumstances under which the IRS will accept an offer in compromise:

• Doubt as to Collectibility;
• Doubt as to Liability; and
• Effective Tax Administration.

If an offer in compromise does not satisfy the requirements of one of these grounds, it will be rejected.  An offer in compromise might also be rejected if the offer is too low or if the taxpayer has been convicted of a tax related crime.  If your offer in compromise is rejected, you will be notified of that fact by mail.  You have 30 days the date of the rejection letter to file an appeal with the IRS Office of Appeals.

Getting Legal Help for a Rejection

Because of the complexity of resolving tax issues, it's best to hire an experienced tax attorney to act as your representative and advocate as you prepare to make an offer in compromise.  Although no attorney can guarantee the outcome of your case, you improve the chances of having your offer in compromise accepted if you hire a qualified tax attorney.