IRS Offer in Compromise Appeals - Introduction
As a refresher to the reader, an IRS offer in compromise is a tax settlement with the IRS where the taxpayer agrees to pay a specified sum and the IRS agrees to compromise on the remaining liability. Many people have seen the various national tax agencies on daytime television offering to settle your tax debt for pennies on the dollar. However, what is left out of their sales pitch is that nearly eighty percent of IRS offer in compromises are rejected for a variety of reasons. This is not entirely a bad thing, but requires some strategic planning on the part of the taxpayer.
IRS Offer in Compromise Appeals – First Steps
First, you should have received a detailed letter from the offer specialist at the IRS who was assigned to your IRS offer in compromise. So take a look at that letter to determine why that offer was rejected. Keep in mind that a rejection of an Offer in Compromise and the return of an Offer in Compromise are not the same thing. Offer in Compromises can be returned for a variety of reasons whether they are procedural, clerical, and administrative. A bankruptcy filing, failure to include the entire application fee, missing information, additional liabilities being accrued while the offer is being considered, and many other things may all cause your offer in compromise to be returned. Unlike rejection, there are almost zero appeal rights for a returned Offer in Compromise (other than pleading with the offer specialist). However, there is nothing to prevent you from resubmitting the offer once the deficiency has been corrected. Returned Offer in Compromises are also an expensive, but valuable lesson on the importance of filing good paperwork with the IRS.
If everything was submitted properly and your offer truly is being rejected, it is time to take stock of the situation. First, check to see if the offer specialist concluded that your reasonable collection potential (based on the IRS financial formulas) exceeded your stated minimum offer amount? If so, double check your initial offer submission (please tell me that you kept a copy) to verify that your financial statement was filled out to your maximum benefit? Did you get the most benefit out of your allowable expense categories? Did you overstate your income? Are your asset valuations accurate? If not, it may be better to withdraw your offer in compromise and resubmit it. The IRS will not keep record of a withdrawn offer in compromise, but a rejected one will count as a strike against your record (especially if the reason it was rejected was not corrected).
Two possibilities here. First, compare the calculations of the offer specialist to your calculations and see where they differ. Do you have a fight? If not, there’s little hope that the appeals division is going to accept your IRS offer in compromise out of the kindness of their hearts. If the revised offer amount that the specialist is proposing is reasonable, perhaps you are better off taking it and running. Think about it: there are still tax savings to be had with any accepted offer in compromise, even if it is not for the amount that you hoped for. Think you are going to have trouble paying the revised offer amount? Maybe the specialist will consider switching you over to more manageable payment terms. After all, the IRS does have an incentive to accept your offer as some money to the government is better than none.
IRS Offer in Compromise Appeals –Last Chances at the Offer Specialist Level
So what if the offer specialist did change something in their calculation that caused the offer to be rejected and you disagree with them. First, try talking to the specialist directly and try to persuade them to reverse course. Ideally, this should have been done before the rejection letter went out, but sometimes you can save an offer from the ashes with a little finesse and a good argument. Offer specialist still not budging? Try talking to their manager. At this point, if you have hit a wall, you have nothing to loose by taking a shot to convince their higher up. Just be warned: managers are busy and often have a heavy bias toward their people. Most of the time, they would rather back up their people and have you win in appeals (where it becomes someone else’s problem) then to potentially upset the person that they have to see every day. However, sometimes you get lucky and occasionally you can get one approved (especially if the position advanced by your offer specialist is ridiculous). It is the manager that needs to sign off on these things anyway.