How to Get IRS to Accept Your Offer in Compromise

Dealing with the IRS for unpaid taxes can be overwhelming, but an Offer in Compromise (OIC) can be a viable solution for taxpayers who cannot pay their tax debt in full. At QMK Consulting, we specialize in franchise and restaurant accounting and help business owners navigate complex tax matters like the OIC process. This blog post will walk you through how to increase your chances of getting the IRS to accept your Offer in Compromise by understanding what the IRS looks for and how to properly prepare and present your case.

Understand What the IRS Looks For

The IRS aims to collect as much tax as reasonably possible. When reviewing an OIC, the IRS evaluates your Reasonable Collection Potential (RCP). This is a formula that estimates what the IRS expects to collect based on your income, expenses, assets, and tax compliance history. The RCP analysis helps determine whether the amount you offer is fair compared to your financial capacity.

Your compliance history also matters—late filings or unpaid taxes without arrangements can hurt your chances. Understanding these factors allows you to realistically approach the OIC process and know what the IRS expects.

File and Stay Current on All Tax Returns

The IRS will not even consider your Offer in Compromise if you have unfiled tax returns. You must submit all required tax returns and stay current with your estimated payments if self-employed, or withholding if employed by others.

Additionally, if you are currently in bankruptcy, the IRS disqualifies you from submitting an OIC. Staying current shows good faith and improves your credibility during the IRS review.

Know the IRS Offer in Compromise Formula

The core of your OIC offer must be at least equal to your Reasonable Collection Potential. RCP is calculated by adding your future income potential over 12 months (lump sum) or 24 months (periodic payments) to the equity in your assets. You can choose to offer a lump sum payment or periodic payments, but whatever you choose must cover the RCP or be close to it.

Knowing this formula helps you prepare a realistic offer and prevents you from underbidding, which could lead to swift rejection.

Document Your Financial Hardship Thoroughly

To succeed with an OIC, you need to demonstrate that paying your full tax debt would cause undue financial hardship. This means providing comprehensive documentation such as pay stubs, bank statements, monthly bills, medical expenses, and other relevant financial records.

Be honest and consistent when presenting your financial situation. Underreporting expenses or hiding assets will result in immediate denial and may damage your relationship with the IRS.

Maximize Allowable Expenses

The IRS uses Collection Financial Standards to determine allowable living expenses on your offer. These standards outline reasonable amounts for housing, food, healthcare, transportation, and other necessary costs.

While you must keep expenses within these limits, legitimate higher-than-average costs—especially for medical care—may be accepted if properly documented. Accurately reflecting your essential expenses strengthens your case.

Avoid Common Mistakes That Lead to Rejection

Many Offers in Compromise get rejected due to avoidable errors:

• Submitting incomplete or incorrect forms, especially Form 656 and 433-A/B
• Forgetting to include the non-refundable application fee ($205) and your initial offer payment
• Ignoring the IRS’s requests for additional documents or information
• Overstating or understating your financial details

Paying careful attention to these details will keep your application on track for acceptance.

Work with a Qualified Tax Professional

Navigating the OIC process alone can be risky. Hiring a CPA, enrolled agent, or tax attorney who specializes in tax negotiation can greatly improve your chances. These professionals understand the IRS’s criteria and present your financial picture strategically to maximize acceptance chances.

Be cautious of “tax relief” companies that guarantee acceptance or ask for large upfront fees. Trustworthy experts provide realistic assessments and work transparently.

What to Do if the IRS Rejects Your Offer

If your offer is refused, there are still possibilities. You can appeal the decision through the IRS Office of Appeals, which provides an independent review. Other solutions include negotiating an installment agreement or applying for currently not collectible status due to extreme hardship.

You can also reapply for an OIC after addressing IRS concerns, but timing and correction of errors are key.

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Frequently Asked Questions (FAQs)

What’s the acceptance percentage of offers in compromise that the IRS accepts?

Acceptance rates generally range between 30% to 45%, depending on the quality of the application and supporting documentation.

How much should I offer the IRS for an OIC?

You must offer at least your Reasonable Collection Potential, which includes your future income and asset equity.

How long does it take for the IRS to decide on an OIC?

The IRS decision process typically takes 6 to 12 months, depending on the complexity of your case and IRS workload.

Can I negotiate with the IRS if they reject my OIC?

Yes, you may appeal through the IRS Office of Appeals or explore alternative payment options.

Does hiring a tax professional increase my chances of acceptance?

Yes. Experienced tax professionals enhance your case by ensuring proper documentation and strategic financial presentation.

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If you’re struggling with tax debt and considering an Offer in Compromise, don’t navigate it alone. QMK Consulting, based in New York City, is your trusted accounting partner specializing in franchise accounting and restaurant accounting. Our expert, Mohamed Karmous, can guide you through the complexities of tax negotiation and help you secure the best possible financial outcome.

Book your free Profit & Cash Flow Analysis today with Mohamed Karmous and see how QMK Consulting’s specialists can help improve your financial health and ease your tax burden.

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