The IRS most often rejects an Offer in Compromise because the offer amount falls below what it calculates you can actually pay, your tax filings or estimated payments aren’t current, or the application is missing required information. Shaun Glenn, CPA, MSA, MST, has spent more than 15 years working on tax and financial matters for churches, nonprofits, schools, and closely held businesses, and he sees the same five issues sink most offers before they ever reach a decision.
This article explains the five most common reasons the IRS rejects offers in compromise, how the IRS evaluates an offer, and what your options are if yours is denied.
Key Takeaways
- Most rejected offers fail the Reasonable Collection Potential test, not a sympathy test.
- Filing and payment compliance must be current before the IRS will evaluate your offer.
- A rejection and a return are different outcomes with different next steps, and only a rejection carries formal appeal rights.
- A CPA who can model your RCP in advance gives you a realistic read on whether an offer in compromise is the right tool before you spend time preparing one.
Rejected vs. Returned: Why the Difference Matters
Not every unsuccessful offer fails for the same reason, and the distinction matters for what happens next.
- Returned: the IRS never substantively reviewed your offer because it was incomplete, you weren’t current on filing or payment requirements, or you filed for bankruptcy while the offer was pending. A returned offer comes with no appeal rights, though you can usually fix the issue and resubmit.
- Rejected: the IRS reviewed the full financial picture and determined the offer amount was too low, or that you didn’t meet one of the legal grounds for compromise. A rejected offer comes with the right to appeal within 30 days.
Knowing which one applies to your case changes your next move, so read the rejection or return letter closely before deciding how to respond.
5 Most Common Reasons IRS Rejects Offer in Compromise
Most unsuccessful offers fail for a handful of avoidable reasons, each tied to a specific financial, documentation, or compliance standard the IRS checks before considering a settlement.
1. The Offer Is Below Your Reasonable Collection Potential
This is the single biggest reason offers in compromise are rejected. The IRS calculates a Reasonable Collection Potential, or RCP, using your net realizable equity in assets plus your future income over a set number of months. If your offer falls below that number, the IRS has little legal basis to accept it, no matter how compelling the hardship story is.
2. You Aren’t Current on Filing, Payments, or Compliance History
The IRS won’t seriously evaluate an offer from a taxpayer who hasn’t filed all required returns or has fallen behind on current-year estimated payments, and a self-employed taxpayer who misses quarterly payments can expect the IRS to return the offer outright. Compliance history matters too: a pattern of missed filings or a previously defaulted installment agreement weighs against the offer even once the paperwork is otherwise in order.
3. The Application Is Incomplete or Missing Documentation
Form 433-A (OIC) or Form 433-B (OIC), the financial statements that support your offer, need to match your bank statements, pay stubs, and other records down to the last line item. Gaps, unsigned forms, or a missing application fee are processability issues, and the IRS returns these offers without ever evaluating the numbers behind them.
4. Your Financial Information Doesn’t Match IRS Records
If your stated income, expenses, or asset values don’t match IRS wage and income data, bank records, or county property records, the discrepancy reads as inaccurate rather than incomplete. That distinction matters: the offer is likely to be rejected rather than returned, since it goes to the substance of the RCP calculation instead of a simple paperwork gap.
5. You Have an Open Bankruptcy Case
The IRS will not process an Offer in Compromise while a bankruptcy case is open, since the automatic stay moves jurisdiction over the tax debt to the bankruptcy court instead. If you file for bankruptcy while an offer is already pending, expect it to be returned rather than decided, and any settlement will need to go through the bankruptcy proceeding itself.
How the IRS Evaluates Every Offer
Every offer is measured against the same RCP formula: net equity in assets, plus what the IRS projects you can pay from monthly disposable income over either 12 or 24 months, depending on the payment terms you choose. There is no separate scale for hardship or sympathy. According to the IRS Data Book’s most recent fiscal-year collections data, taxpayers submitted 38,797 Offers in Compromise, and the IRS accepted 5,464, for an acceptance rate of about 14 percent. That rate has fallen sharply over the past two fiscal years, which reflects tighter financial analysis and documentation standards, not a change in who is eligible to apply.
What Happens After the IRS Rejects Your Offer?
The IRS sends a letter explaining the specific reason for the rejection, and from there you have more than one way to respond.
- Appeal within 30 days: file Form 13711, Request for Appeal of Offer in Compromise, and the IRS Independent Office of Appeals will review the case separately from the original examiner.
- Cure and resubmit: many rejected offers can be fixed and resubmitted once the specific issue, whether a documentation gap or an RCP dispute, is addressed.
- Consider a different resolution path: an installment agreement or Currently Not Collectible status may fit your financial picture better than a resubmitted offer.
- Contact the Taxpayer Advocate Service: this independent IRS resource can step in if you’re facing a significant hardship while your case is pending.
How to Strengthen Your Offer Before You Submit It
- File every past-due return first: the IRS will not process an offer until your filing history is current.
- Stay current on estimated payments: ongoing compliance is checked throughout the review, not just at submission.
- Match your numbers to your records: bank statements, pay stubs, and asset values should support every figure on Form 433-A (OIC).
- Calculate your own RCP before you offer: a CPA can model the formula in advance so the offer amount reflects what the IRS is actually likely to accept.
- Keep copies of everything: a complete, organized application is far less likely to be returned on a processability issue.
How Simplicity Financial Can Help With an IRS Offer in Compromise
Evaluating whether an Offer in Compromise is realistic, and building one that can withstand the IRS’s Reasonable Collection Potential calculation, takes financial analysis, not a sales script. Shaun Glenn, CPA, MSA, MST, is a CPA in California who has spent more than 15 years handling tax and financial matters for churches, nonprofits, schools, and closely held businesses, and holds a Master of Science in Accounting and a Master of Taxation alongside his CPA license.
As a licensed CPA, Shaun follows the practice standards in Treasury Department Circular 230 when representing a client before the IRS, standards that mill-style resolution companies built around flat-fee sales teams don’t follow. Simplicity Financial’s tax resolution services review your full financial picture before recommending an Offer in Compromise, an installment agreement, or Currently Not Collectible status, so you know which option actually fits before you apply.
Talk to a CPA About Your Offer in Compromise
If your Offer in Compromise was rejected, or you’re still deciding whether one is the right move, Simplicity Financial can review your financial picture and walk you through your realistic options. Schedule a Phone Call or book a Zoom call with Shaun to get a straightforward read on where you stand.
FAQs About OIC Rejection Reasons
Why would an offer in compromise be rejected?
Most rejections come down to the offer amount falling below your Reasonable Collection Potential, or the IRS determining you don’t meet one of the legal grounds for compromise. Returns, unlike rejections, usually trace back to compliance or paperwork issues.
How likely is the IRS to accept an offer in compromise?
Based on the most recent fiscal-year data in the IRS Data Book, roughly 14 percent of submitted offers were accepted. Your individual odds depend on your income, assets, and compliance history, so this figure is a general benchmark, not a prediction for any specific situation.
How do you get the IRS to accept an offer in compromise?
You can’t guarantee acceptance, but filing all required returns, staying current on estimated payments, and proposing an amount based on an accurate RCP calculation are the factors most within your control.
What are the most common reasons the IRS rejects or returns an offer?
An offer amount below RCP and ineligibility on the legal grounds for compromise account for most rejections. Incomplete applications, non-filing, and open bankruptcy cases account for most returns.
Disclaimer: This article is for general educational purposes only and does not constitute tax, legal, or financial advice. Offer in Compromise outcomes depend on each taxpayer’s complete financial picture and the IRS’s evaluation of that information. Simplicity Financial does not guarantee any specific outcome. Contact Shaun Glenn, CPA, MSA, MST, or another qualified tax professional to review your situation before taking action.