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.

Automated OIC Appeal Review

Did you know that if your Offer in Compromise (OIC) is rejected, there is a “self-help tool” on the IRS website that will walk you through a series of steps to help you determine if you should appeal it or not?

This is yet another example of the IRS’ attempt to automate everything they do.  I guess it does make sense to explore all available options for replacing the best and brightest who will be leaving the IRS when they retire.  And I guess it makes sense to try to find cheaper alternatives, given that the IRS is not going to get the kind of funding they need to hire live bodies.  This just seems to cross the line.

I know how complicated and frustrating the OIC process can be.  When an OIC has been rejected, what the appellant really needs is to speak with a good tax attorney.  Or, at a minimum, he needs to be able to talk with a live body at the IRS who will explain the IRS’ determination and who will really consider a taxpayer’s individual circumstances.

It does have some value, don’t get me wrong.  I have spent a little time with this tool and, from what I can tell, it is perfect for identifying errors and oversights made by offer examiners.

Ai Weiwei’s Tax Case up for Reconsideration

Our political activist / artist friend, Ai Weiwei, is in the news again today fighting for his own personal tax relief and the broader agenda of pursuing justice for his fellow countrymen.

The Beijing Local Taxation Bureau has agreed to hear his appeal of a $2.4 million tax bill and fine for alleged tax evasion. They informed him the process would take no more than two months.

The IRS should take note of this.  Chinese tax authorities gave themselves a deadline, a very reasonable deadline!  Ok, but let’s not get overly excited about this.  Will they follow through on this self-imposed deadline?  And even if they do act quickly, is a speedy & oppressive ruling any better than the slow churning of the IRS?  In other words, is this case being reviewed just to appease Ai and other government opposition?

Everyone will be watching closely for any missteps in the process.  Ai for himself definitely sees his appeal as something grand and symbolic:

How they handle this relates to issues of China’s rule of law and the safety of its people. It has very broad implications. If they can’t resolve this issue very fairly and carefully, it will bring harm to this society’s justice system.