8 Mistakes That Get Your Offer in Compromise Rejected

Introduction

The Offer in Compromise program is one of the most powerful tools available for settling IRS tax liability — but it’s also one of the most unforgiving. With an overall rejection rate of approximately 62%, the IRS denies more OICs than it accepts. And many of those rejections are completely preventable.

The truth is, most OIC mistakes aren’t about having too much income or too many assets. They’re about paperwork errors, missed deadlines, and strategic blunders that could have been avoided with the right preparation.

If you’re investing the time, $205 application fee, and months of waiting that an OIC requires, you can’t afford to make avoidable mistakes. One missing form, one unchecked box, one overlooked requirement — and your entire application is returned or denied.

The 8 Mistakes: 1. Not filing all required tax returns first 2. Not making estimated tax payments during the review period 3. Undervaluing your assets on Form 433-A (OIC) 4. Missing the $205 application fee 5. Submitting an incomplete Form 433-A (OIC) 6. Offering too little (below your Reasonable Collection Potential) 7. Not explaining special circumstances 8. Missing critical deadlines

Keep reading for the fix and prevention strategy for each mistake.

1. Not Filing All Required Tax Returns First

The Mistake

Under the Form 656-B booklet rules, the IRS requires that you be current on all tax return filings before they will process your Offer in Compromise. This means every required return — income tax, payroll tax, information returns — must be filed before you submit Form 656.

Many taxpayers who owe back taxes also have unfiled returns for one or more years. They assume they can file the OIC first and catch up on returns later. The IRS disagrees — emphatically.

If the IRS discovers unfiled returns when they open your OIC case, they will return your application without consideration. You’ll lose months of time and have to start over.

The Fix

Before preparing your OIC application:

• Verify your filing statusby requesting a Wage and Income Transcript and Account Transcript from the IRS for every year you might have a filing requirement
• File all missing returns— even if you can’t pay the balance. Filing is a separate obligation from paying
• Allow 2–4 weeksfor the IRS to process filed returns before submitting your OIC
• Confirm receiptby checking your IRS account online or calling the IRS

If you owe additional tax on unfiled returns, those new balances can be included in your OIC. Filing the returns may increase your total balance, but it’s a non-negotiable prerequisite for the Offer in Compromise program.

2. Not Making Estimated Tax Payments During the Review Period

The Mistake

If you’re self-employed or have income that isn’t subject to withholding, you’re required to make quarterly estimated tax payments (IRC § 6654). The IRS requires you to stay current on estimated payments not just before submitting your OIC, but throughout the entire 7–12 month review period.

This catches many self-employed taxpayers off guard. They submit their OIC, assume collections are on hold, and stop making quarterly payments. When the OIC examiner reviews the case months later and discovers missed estimated payments, the offer is rejected.

The IRS’s reasoning is straightforward: they won’t settle old balance while you’re creating new balance.

The Fix

• Calculate your quarterly estimated tax paymentsfor the current year using Form 1040-ES
• Set up automatic paymentsthrough IRS Direct Pay or EFTPS (Electronic Federal Tax Payment System) to ensure you never miss a due date
• Keep proof of every payment— you may need to provide this to the OIC examiner
• Mark your calendarfor the quarterly deadlines: April 15, June 15, September 15, and January 15

If you’re unsure whether you need to make estimated payments, consult a tax professional. It’s better to overpay (you’ll get a refund) than to miss a payment and lose your OIC.

3. Undervaluing Your Assets on Form 433-A (OIC)

The Mistake

When completing the asset section of Form 433-A (OIC), some taxpayers intentionally or accidentally undervalue their assets. They might:

• Use a low-ball estimate for their home’s fair market value
• Claim a vehicle is worth less than it is
• “Forget” to list a bank account, retirement account, or investment
• Understate the cash surrender value of a life insurance policy

The IRS will verify your reported values against bank records, title records, county assessor data, credit reports, and DMV records. If they find discrepancies, your credibility is destroyed — and so is your OIC.

Intentional undervaluation can even be treated as fraud under IRC § 7206, carrying criminal penalties including fines and imprisonment.

The Fix

• Report every asset honestly— even small accounts or assets you think are irrelevant
• Use objective valuation sources:
  • Homes: Zillow, Redfin, or a professional appraisal
  • Vehicles: Kelley Blue Book (KBB) or NADA guides — use “private party” value
  • Retirement accounts: Most recent account statement
  • Bank accounts: Current balance (the IRS will verify)
  • Life insurance: Request a cash surrender value statement from your insurance company
• Apply the IRS quick-sale value formula:80% of fair market value for physical assets, minus encumbrances
• Document everythingwith printouts, statements, and appraisals attached to your application

Use our OIC calculation guide for the correct methodology to value every asset type.

4. Missing the $205 Application Fee

The Mistake

Every OIC application requires a $205 non-refundable application fee unless you qualify for the low-income waiver. This fee must be submitted with your application as a separate payment (check or money order) from your initial offer payment.

It sounds simple, but the IRS returns thousands of OIC applications each year because the applicant:

• Forgot to include the fee entirely
• Combined the fee with their initial payment in a single check
• Sent the wrong amount
• Made the check payable to the wrong entity
• Didn’t include their SSN on the payment

The Fix

• Write a separate check or money order for exactly $205
• Make it payable to “United States Treasury”
• Write your SSN and “OIC Application Fee” on the memo line
• Do not combine this payment with your initial offer payment— they are separate payments for different purposes
• If you qualify for a low-income waiver, check the Low-Income Certification box on page 2 of Form 656 and send no application fee or payments

Check whether you qualify for the waiver: if your household income is at or below 250% of the federal poverty level, you may be exempt from both the application fee and initial payment requirements. This can save you thousands of dollars upfront.

5. Submitting an Incomplete Form 433-A (OIC)

The Mistake

Form 433-A (OIC) is the detailed financial statement that the IRS uses to determine your Reasonable Collection Potential. It’s a multi-page form with dozens of fields covering income, expenses, assets, and liabilities.

Common completeness issues include:

• Blank fields— even if the answer is zero or N/A, you must fill in every field
• Missing pages— the form is multiple pages; leaving any out triggers a return
• Outdated information— bank balances, pay stubs, and asset values must be recent (within 3 months)
• Unsigned form— both spouses must sign for joint liabilities
• No supporting documents— bank statements, pay stubs, and valuations must be attached

The IRS won’t call you to request missing information. They’ll simply return your entire package with a letter saying it was incomplete.

The Fix

Use our Form 656 complete guide and checklist to ensure every section is completed and every supporting document is attached. Specifically:

• Complete every field.Use “$0” or “N/A” where applicable — never leave blanks
• Attach documentation for every number.If you list $3,200 in checking, attach the bank statement showing $3,200
• Use recent data.Bank statements and pay stubs should be from the last 3 months
• Double-check math.Monthly income minus monthly expenses should equal your reported disposable income
• Make copies of everythingbefore mailing — you’ll need them if the IRS has questions
• Have someone review your applicationbefore submitting — a fresh set of eyes catches errors you’ve overlooked

6. Offering Too Little (Below Your Reasonable Collection Potential)

The Mistake

This is the single most common reason OICs are rejected on the merits. Taxpayers hear “settle for pennies on the dollar” and assume they can offer a token amount regardless of their financial situation.

The IRS evaluates every OIC against your Reasonable Collection Potential (RCP) — the total they believe they can collect from your assets and future income. If your offer is below the RCP, the IRS rejects it. Period.

Common reasons taxpayers’ offers fall below the RCP:

• Using actual expenses instead of IRS Collection Financial Standards
• Forgetting to include retirement accounts, investments, or cash value life insurance
• Using the wrong multiplier (12 months for lump sum, 24 for periodic)
• Not accounting for a spouse’s income and assets
• Hoping the IRS will “round down” or show mercy

The IRS is not a negotiation partner in the traditional sense. The RCP is a mathematical floor, and your offer must meet it.

The Fix

• Calculate your RCP before submitting.Use our detailed OIC calculation guide with the formula: RCP = Net Equity in Assets + Future Income
• Use IRS Collection Financial Standardsfor allowable expenses — not your actual spending
• Include ALL assetsat their proper quick-sale value
• Compare lump sum vs. periodiccalculations to find the lower RCP option
• If your RCP is higher than you can afford, explore whether special circumstances (see Mistake #7) justify a below-RCP offer, or consider alternative programs like an installment agreementor IRS Fresh Start programs

7. Not Explaining Special Circumstances

The Mistake

The IRS has provisions under IRM 5.8.4 and IRS Policy Statement 5-100 to accept offers below the calculated RCP when special circumstances exist. These include:

• Serious chronic illness or disability
• Advanced age with limited earning capacity
• Natural disaster impact
• Domestic violence situations
• Economic conditions that make asset liquidation impractical
• Other factors that make full collection unfair or inequitable

Many taxpayers who have legitimate special circumstances fail to mention them — either because they don’t know the provision exists, they think their situation isn’t “special enough,” or they’re embarrassed to share personal details.

By not explaining your circumstances, you’re leaving money on the table. An examiner can’t consider factors they don’t know about.

The Mistake Also Works in Reverse

Some taxpayers write lengthy emotional letters without providing supporting documentation. Saying “I’m very sick and can’t work” without medical records, doctor’s letters, or disability determinations isn’t persuasive to the IRS.

The Fix

• Write a detailed cover letter(sometimes called a “hardship letter”) explaining every factor that affects your ability to pay
• Be specific and factual— dates, diagnoses, dollar amounts, employment history
• Provide supporting documentation:
  • Medical records and doctor’s letters
  • Social Security disability determination
  • Unemployment records
  • Divorce decrees or court orders
  • Employer termination notices
  • Evidence of natural disaster impact
• Connect your circumstances to your finances— explain exactly how your situation limits your ability to earn income, maintain employment, or liquidate assets
• Attach the cover letter to your Form 656as a supplemental exhibit

Even if your offer meets the RCP, a well-documented special circumstances letter strengthens your case and demonstrates good faith.

8. Missing Critical Deadlines

The Mistake

The OIC process has several time-sensitive requirements that, if missed, can derail your application:

• 30-day appeal window:If your OIC is rejected, you have exactly 30 days from the date on the rejection letter to file an appeal using Form 13711. Miss this, and the rejection is final.
• 5-month payment deadline (lump sum):After acceptance, you must pay the remaining balance within 5 months. Failure to pay on time can default the agreement.
• Monthly payments during review (periodic):If you chose periodic payments, you must continue making monthly payments while the IRS reviews your offer. Missing a payment can result in return of the offer.
• Estimated tax payment deadlines:As discussed in Mistake #2, quarterly estimated payments must be made on time throughout the process.
• 5-year compliance period:After acceptance, you must file all returns and pay all taxes on time for 5 full years. A single missed filing or late payment can default your accepted OIC, and the IRS can pursue the original full amount.

The Fix

• Create a calendar systemwith every deadline the moment you submit your OIC
• Set reminders 2 weeks beforeeach deadline to give yourself time to prepare
• Use automated paymentswhere possible (IRS Direct Pay, EFTPS) to eliminate human error
• Keep copies of all payments and filingsas proof of compliance
• If you receive a rejection letter, immediately mark the 30-day appeal deadline and begin preparing Form 13711
• After acceptance, treat the 5-year compliance period seriously— one mistake can undo your entire settlement

Deadline	Consequence of Missing	Prevention
All returns filed before OIC	Application returned	File all returns before applying
Estimated tax payments	OIC returned or rejected	Set up automatic payments
30-day appeal window	Rejection becomes final	Calendar the date immediately
5-month lump-sum payment	OIC defaults	Plan funding before acceptance
Monthly periodic payments	OIC returned during review	Automatic bank transfers
5-year compliance period	Full original balance reinstated	Reliable tax preparation system

How Many of These Mistakes Can You Make?

The short answer: zero. Even one of these mistakes can sink your Offer in Compromise. And many of them compound — for example, an incomplete Form 433-A (Mistake #5) often leads to an undervalued RCP calculation (Mistake #6), which leads to an offer that’s too low.

The OIC acceptance rate is approximately 31%, but among applicants who avoid all eight of these mistakes, the success rate is significantly higher. Preparation is everything.

Frequently Asked Questions

What is the most common reason OICs are rejected?

The most common reason for OIC rejection is offering an amount below the IRS-calculated Reasonable Collection Potential (RCP). This happens when taxpayers use incorrect expense figures, undervalue assets, or don’t understand the RCP calculation formula. The second most common reason is non-compliance — specifically, unfiled tax returns or missed estimated tax payments. Together, these two issues account for the majority of all OIC rejections. Ensuring your offer meets the RCP and you’re fully compliant before applying eliminates the two biggest risk factors.

Can I resubmit an OIC after it’s rejected?

Yes, you can submit a new Offer in Compromise after a rejection, but you’ll need to pay a new $205 application fee and include a new initial payment (20% of the lump sum or first periodic payment). Before resubmitting, identify exactly why your previous offer was rejected and fix those issues. If the rejection was due to compliance problems, resolve them first. If your offer was below the RCP, recalculate using proper methodology. Alternatively, you may be able to appeal the rejection within 30 days using Form 13711, which doesn’t require a new fee.

How long should I wait before resubmitting a rejected OIC?

There’s no mandatory waiting period between OIC submissions, but you should wait until you’ve resolved the issues that caused the rejection. If you had unfiled returns, wait until they’re processed (2–4 weeks after filing). If your financial situation needs to change to produce a different RCP, wait until those changes have occurred. Some taxpayers resubmit within a few months; others wait a year or more. The key is not speed — it’s submitting a stronger application that addresses every weakness in the original.

Does the IRS really verify all the information on Form 433-A (OIC)?

Yes. The IRS verifies your financial information through multiple channels, including bank records requests, credit bureau reports, DMV records for vehicle ownership, county assessor data for real estate, and wage and income transcripts. The OIC examiner assigned to your case has access to sophisticated data-matching tools. Discrepancies between what you report and what the IRS finds through verification will result in questions at best — and rejection or fraud investigation at worst. Always report accurate, verifiable information.

What happens to my OIC if I can’t make estimated tax payments during the review?

If you fail to make required estimated tax payments while your OIC is under review, the IRS can return your offer without further consideration. “Returned” means they didn’t evaluate the merits of your offer — they simply sent it back because you weren’t in compliance. You’ll lose the time invested and must start the process over. If you’re struggling to make estimated payments, discuss this with a tax professional before submitting. There may be ways to reduce your estimated payment obligation or explore alternative tax relief options.

Should I hire a tax professional or prepare my OIC myself?

Given the ~62% rejection rate, working with an experienced tax professional is strongly recommended — especially if your tax situation involves business income, multiple tax years, or complex assets. A tax attorney, CPA, or enrolled agent experienced in OICs can calculate your RCP accurately, prepare all forms correctly, avoid each of the eight mistakes outlined in this guide, and represent you before the IRS if questions arise. The cost of professional help is typically far less than the cost of a rejected OIC (lost application fee, lost initial payment, lost time, and continued IRS collection activity like wage garnishments or levy notices).

Don’t Let Preventable Mistakes Cost You Tax Relief

Every mistake on this list is avoidable. Filing your returns, making your payments, valuing your assets honestly, completing your forms thoroughly, offering the right amount, documenting your circumstances, and meeting your deadlines — these are the building blocks of a successful Offer in Compromise.

The OIC program exists to give taxpayers a genuine path to resolving tax liability they can’t pay. But the IRS won’t bend the rules for sloppy applications. Show them you’re serious by submitting a complete, accurate, well-documented offer.

Need help? Call Global Gate Tax Relief at 1-877-800-8180 for a free consultation. Our team of tax professionals has helped thousands of Americans resolve their IRS problems.