How to Appeal a Rejected IRS Offer in Compromise Using Form 13711

At first glance, the offer in compromise (OIC) seems like the perfect solution to unpaid tax problems. This makes sense, as the OIC allows taxpayers to settle their tax debts for less than the full amount due. However, the IRS is very particular about which offers it accepts, and the agency rejects about half of all OIC applications.

If you submitted an OIC to the IRS and they rejected it, it can feel disheartening. Not only does resolving your outstanding tax balance feel impossible, but there’s all the time and effort you put into your OIC application. But before you give up, consider filing an appeal. 

Let’s take a closer look at when and how you can appeal an OIC rejection by the IRS and what to expect during the appeals process. To get help with this process, contact us at Damien’s Law today.

Key Takeaways 

• The IRS usually returns OIC requests when there’s a procedural or technical problem, such as mistake or missing information; returned OICs can’t be appealed.
• The IRS usually rejects OIC requests for financial reasons, such as believing the taxpayer can afford to pay more than they’re offering.
• To appeal a rejected OIC, the taxpayer must complete Form 13711, identify each reason they disagree with the IRS, and provide additional information and documentation to support their assertions.
• A tax professional can help spot these areas of disagreement, what information would best support the taxpayer’s positions, and help decide if an alternative option would be better. 

Reasons Why the IRS Might Reject an Offer in Compromise 

If the IRS rejects your offer in compromise, it’s usually due to disagreeing with you about your financial situation. Put another way, they believe you have access to more money than you claim. There are several ways in which the IRS may reach this conclusion:

• Your offer is too low (the IRS feels you can make bigger payments).
• The IRS thinks you can afford to pay your full unpaid tax amount, plus penalties and interest.
• You have financial liabilities or expenses that can be reduced (the IRS thinks you’re living beyond your means).

One thing to keep in mind is that the IRS can decline to accept your OIC because they reject it or because they decide to return it. Having an OIC rejected is not the same thing as having it returned, as a rejected OIC can be appealed, while a returned OIC can’t. 

What Is a Returned Offer in Compromise? 

If the IRS returns your OIC, it’s because there’s something wrong with the application. In other words, there’s a procedural error or mistake, and the IRS won’t accept your offer on a technicality. Common reasons for a returned OIC include:

• You filed for bankruptcy.
• Your application is missing information, either on the forms or with supplemental documentation.
• You didn’t pay the application fee.
• You’re missing one or more required tax returns.
• You added to your outstanding tax debt while the IRS was reviewing your OIC.
• The IRS believes your OIC request was frivolous or made with the intent to delay the IRS’s collection efforts.

While you can’t appeal a returned OIC, you still have the right to cure any defects and resubmit it. Sometimes the defect is obvious and easily rectified. In cases where it’s not, consider consulting with a tax pro with experience with OICs. 

What to Do After Receiving an OIC Rejection from the IRS 

If you receive an OIC rejection letter in the mail, you have three options:

• Submit a new OIC.
• Consider an alternative to an OIC.
• File an appeal.

With these three possibilities in mind, carefully read the rejection letter and make sure you understand why the IRS rejected your request. The reason(s) for the rejection will help decide which step to take next. 

Submitting a New OIC 

If you decide to submit a new OIC, you’ll have to start the application process all over again. If your rejected OIC request was based on doubt as to collectibility, you can still use that as the basis for your new OIC, but you’ll need to increase the offer amount to the IRS. 

Applying for OIC Alternatives 

Besides the OIC, there are other ways to settle your tax debt with the IRS. Some of these could include:

• Innocent spouse relief
• Currently not collectible (CNC) status
• Payment plan or installment agreement
• Penalty abatement 

Depending on why your offer was rejected, you may want to explore one of these options. 

Filing an Appeal 

If you decide to appeal (a tax professional can help you decide if this is your best course of action), you don’t have much time to make the decision and file it. You only have 30 days from the date of the OIC rejection letter to request an appeal. Depending on when you receive the notice, you may have as little as a few weeks to make a decision and file the appeal. If you try to file an appeal after this deadline, the IRS will automatically reject it. 

Filing an OIC Appeal Using IRS Form 13711 

If you want to appeal the OIC rejection, you’ll need to request a conference with the Independent Office of Appeals using IRS Form 13711, Request for Appeal of Offer in Compromise.

If you don’t want to use this form, you can choose to write a letter instead. This letter must include the following information:

• Your name, address, daytime phone number, and tax ID number.
• A copy of your OIC rejection letter.
• Wording that makes it clear that you’re appealing the OIC rejection to the Independent Office of Appeals.
• The tax years at issue.
• A list of the disagreements you have with the IRS and the basis for those disagreements.
• Any additional information to support your position, including facts, legal authority, and documentation.
• Any other information you want the IRS to consider.
• A signature swearing that the information you’re providing is correct, true, and complete, under penalty of perjury.

You’ll notice how the information required to be included in your appeal letter largely mirrors the information you need to include with Form 13711. 

Completing IRS Form 13711 

Mechanically, this is a fairly easy form to complete. Basically, you put your taxpayer and contact information then explain why you’re disagreeing with the IRS. It’s figuring out how to best explain why you disagree with the IRS that’s the tricky part. 

Step 1: Filling Out Your Personal and Contact Information 

This information goes at the top of the form and is pretty straightforward. This section also requires you to identify the tax year(s) in question. 

Step 2: Identifying the Areas of Disagreement 

This will be the most challenging part of Form 13711. If your appeal is like most others, you’ll focus on the financial numbers.

When the IRS rejected your OIC (assuming you applied based on doubt as to collectibility), you should have received an Income/Expense Table (IET). You also may have received an Asset/Equity Table (AET).

The IET is a summary of the IRS’ findings concerning how much money you can earn (income) and how much money you reasonably need to pay for life’s necessities (expenses). The AET is a summary of the IRS’ findings relating to the value of the property you owe (assets) and how much they’re worth (equity).

The primary goal of the IET and AET is for the IRS to figure out how much money you have left after paying for basic living expenses and how much equity you have in your major assets, like your home.

The IRS uses these findings to decide how much of your tax debt you can afford to pay back with your income or by selling your assets. This is how the IRS decides whether it has a realistic chance of trying to collect the entirety of your tax debt or if accepting a smaller amount is a realistic option.

For example, imagine you’re making $3,000 per month and your basic living costs are $2,700 per month. The only significant assets you have are your home (worth $200,000 with a $160,000 mortgage) and your car (worth $10,000 with a $12,000 car loan balance).

If you owed the IRS $675,000, there’s no way you can realistically pay back all of this tax debt with a net worth of less than $40,000 and only $300 each month in disposable income. If you were to submit an OIC to the IRS offering to pay $50 a month for 24 months, the IRS may accept or reject your offer depending on the specifics of your situation. 

For instance, let’s say that your $2,700 per month in expenses includes $1,400 in medical expenses. That significantly exceeds the amount the IRS expects to see in medical expenses, so the agency may reject your offer. However, your monthly medical costs are high because you have a chronic illness that requires special treatments and prescription medications that your health insurance only partially covers.

When you file an appeal, you’ll want to explain your health situation and provide medical bills, insurance documents, and receipts proving how much you have to pay each month for your health issues. That increases the chance of getting approved during the appeals process.

By way of another example, the IRS might conclude you’re overpaying for Internet and cellphone service. What the IRS doesn’t understand is that you’re a freelancer whose primary source of income comes from hosting livestreams. Therefore, you need a high-bandwidth Internet service for your home and an unlimited data plan for your phone so you can livestream to your audience and earn income from the subscription fees your audience pays. 

However, if all of your expenses were under the IRS’s allowable limits, the agency may accept your offer if it includes all $300 of your monthly disposable income. In this case, the agency would not expect you to tap into your home’s equity – for the purposes of an OIC, the IRS usually only considers 80% of your property’s fair market value when calculating available equity. 

Step 3: Certification 

You’ll need to sign and date the bottom of your form certifying the completeness and accuracy of the information you provided. If someone completed Form 13711 for you, they’ll need to declare their level of knowledge of the information provided on or with Form 13711, as well as sign and date the appropriate part of the form. In this latter situation, you’ll also need to send IRS Form 2848, Power of Attorney and Declaration of Representative. 

Step 4: Submitting Form 13711 

You’ll mail Form 13711 and accompanying documents to the IRS office that sent you the OIC rejection letter.

Tips for a Successful OIC Appeal 

The key is to fully understand why the IRS rejected your initial OIC request and provide information and explanations that address these reasons. This means providing plenty of details and documentation to support your position and arguments. It’s also strongly recommended that you talk to a tax resolution professional who has experience handling OICs and appealing rejections. They can help you craft your appeal most effectively and can identify areas where additional support could be beneficial. 

What Happens Next 

After you submit your appeal, the IRS will need time to review the new information. Expect this to take several months before the IRS informs you of the decision. If you don’t hear from the Independent Office of Appeals within 120 days of filing your appeal, you can follow up by contacting the IRS office that received your Form 13711. 

Need Help Appealing a Rejected OIC? 

You might feel like giving up if you receive an OIC rejection letter in the mail. But after examining why the IRS rejected your request and critically reviewing the numbers the IRS came up with in the AET and/or IET, you might realize that additional information and clarification might help the IRS change its mind. 

Damiens Law can help with this process or when filling out Form 13711. Contact us to learn more and set up a free consultation.

OIC Appeal and Form 13711 FAQs 

What are the most common reasons for the IRS to reject an OIC? 

The most common reason is that the IRS believes you have the financial ability to pay off more of your tax debt than you claim. The least common reasons usually arise with OIC requests based on doubt as to liability or effective tax administration.

How long does the IRS take to respond to an OIC appeal? 

The exact timeline depends on the complexity of your OIC appeal, but you should expect it to take at least a few months. That being said, it could take up to eight or nine months for the IRS to review your appeal and make a decision. 

Can I submit a new OIC if my appeal is denied? 

Yes, and you can decide to make a larger offer or submit an OIC on different grounds. However, given the time and effort it takes to complete a new OIC application, it’s a good idea to first talk to a tax resolution professional with experience handling OIC cases. 

What should I do if my OIC gets returned? 

If the reason for the return is obvious and easy to fix, go ahead and make the changes and resubmit your OIC. However, if you don’t understand (or disagree) with the reason the IRS returned your OIC, it’s a good idea to consult with a tax professional to better understand the reason for the return and what to do about it.

Does it help to hire a tax professional with an OIC appeal?

It usually does, especially if you’re not sure what additional evidence you need to provide to convince the IRS that your income or assets aren’t as high as the IRS believes or that your expenses or liabilities are larger than the IRS acknowledges.

A tax professional can also be beneficial when arguing that you’re not liable for the underlying tax debt or that paying the full tax balance would be unfair, inequitable, or result in severe financial hardship. The former situation might require detailed and/or nuanced legal positions while the latter situation might require subjective arguments that a tax pro could better help you identify and present to the IRS. 

Are there any fees for filing an OIC appeal using Form 13711? 

No, there are not.