What happens if my Offer in Compromise is rejected by the IRS?

If the IRS rejects your OIC, you have several options. First, you'll receive a Letter 686-C explaining why the OIC was rejected. Common rejection reasons include: the offer amount is too low (below RCP), unfiled tax returns, current-year estimated payments not made, or the IRS believes you can full-pay through an installment agreement. Your options after rejection: (1) Appeal within 30 days of the rejection letter to the Independent Office of Appeals, which often reaches different conclusions than the examining unit, (2) Submit a new OIC with a higher offer amount or corrected financial information addressing the reason for rejection, (3) Pursue an alternative resolution: installment agreement, Currently Not Collectible status, or partial-pay installment agreement, (4) Wait for a change in financial circumstances and resubmit. The appeal is often the best first step, as Appeals officers have more settlement authority and a broader perspective. During the appeal, collection activity remains suspended. Note that during the time your OIC was pending, the collection statute was tolled (paused), so the IRS has longer to collect after rejection. About 40% of initially rejected OICs are resolved favorably at the Appeals level.