Do you Need to Appeal your OIC?

Once in a while an Offer in Compromise (OIC) is accepted based only on the documents originally submitted, but this is extremely uncommon.  Normally the IRS will at least have some questions, and usually they will have somewhat of a laundry list of questions and document requests.

Once the Offer Examiner has received all the information necessary to put together a complete analysis, she will send a “preliminary analysis letter.”  Most of the time the IRS will determine that the taxpayer is able to pay the tax liability in full and/or that acceptance of the offer is not “in the government’s best interest.”  Some of the language in this letter has a hint of finality to it and taxpayers tend to misjudge/misread it as a rejection letter.  But the offer can often be kept alive at this point by supplying additional information and by making the right arguments.

If taxpayer’s response does not convince the IRS to change its position, then the IRS will (after manager approval and independent review) submit a decision letter.  A decision letter could be any of the following:

  • Acceptance
  • Rejection (with appeal rights)
  • Rejection with option to increase
  • Return (no appeal rights)

But even a rejection letter isn’t always the end of the road.  If there are legitimate issues, a taxpayer may want to file an appeal.  Filing an appeal puts the offer in front of an independent and fresh set of eyes.  The IRS Office of Appeals is “independent” in the sense that it is not connected with the office that decided to reject your OIC.  Don’t think that the Appeals Office is a completely independent government agency because it is not.

An Offer in Compromise must be filed on a specific form and within 30 days from the date of the rejection letter.  Taxpayers may substitute a letter instead of the appeal form, but the letter must contain all the same elements required by the form.  Once your appeal has been filed, be prepared to wait about the same length of time you waited for your OIC to be assigned.  Also, remember that the collection statute is tolled (extended) during the entirety of the appeals process just as it is during the OIC review.

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