When you can’t pay your full tax debt, an Offer in Compromise (OIC) lets you settle for less. It helps taxpayers who genuinely can’t afford to pay in full. However, about 79% of OIC applications in 2023-24 were rejected, mainly due to mistakes like missing tax returns, inaccurate info, or incomplete forms. To improve your chances, keep all tax returns current, provide accurate details, and include all required documents when applying.
Before we dive into mistakes to avoid, let’s quickly go over what an Offer in Compromise is and why it matters.
What Is an OIC and Why Is It Important?
An offer in compromise is an official agreement between you and the IRS. It lets you pay less than your full tax debt if the IRS thinks that’s all you can afford based on your finances. This helps taxpayers who:
- Are unable to pay their full tax bill
- Was unable to afford to pay the full amount in case of the obligation to do it
- Do not want to experience wage garnishments, seizing or receiving bank levies
There are strict standards to be met by IRS to accept an OIC. You have to demonstrate your income, expenditure, assets and debts authentically and fully. It is a complicated process and any errors would make your application get rejected in a short time.
Knowing and avoiding common OIC application mistakes is essential if you want to reduce your tax debt without years of stress.
Top OIC Application Mistakes to Avoid in 2025
1. Providing Incomplete or Incorrect Financial Information
The IRS demands a proper and fair picture of your finances. Making incorrect applications to OIC, such as providing incorrect information or including incorrect information, is one of the most significant errors in making applications to OIC, particularly these two important forms:
- Form 433-A (OIC): For individuals
- Form 433-B (OIC): For businesses
Common errors include:
- Forgetting to list all bank accounts, investments, or properties
- Not reporting all sources of income (like side jobs or freelance work)
- Using old or outdated financial statements
- Making simple math or data entry mistakes
Why it matters:
The IRS compares what you report against its own data sources. Any discrepancies may raise red flags. These can delay processing or cause outright rejection. Worse, serious mistakes might trigger an IRS audit, making your situation worse.
How to avoid:
- Prepare all documents carefully before filling out your forms
- Double-check for accuracy and consistency
- Use recent bank and income statements (last 3-6 months)
- Be honest, never hide assets or income
2. Not Filing All Required Tax Returns
The IRS won’t consider your Offer in Compromise if you have unfiled tax returns. This is one of the most common IRS OIC denial reasons; you must be fully compliant with filing requirements before submitting your offer.
Important facts:
- Missing returns will cause the IRS to reject your application without review.
- This includes personal and business tax returns for past years.
- You can’t negotiate if you haven’t met your filing obligations.
What to do:
- Check if you have any outstanding tax returns.
- You can request a transcript from the IRS if unsure.
- File all back tax returns before submitting your OIC.
- If needed, get help from a tax professional to file missing returns quickly.
3. Offering Too Little Money
The IRS expects an offer amount that reflects its Reasonable Collection Potential (RCP). An RCP is a calculation method that the IRS uses to estimate how much it can realistically collect from you. It looks at:
- The value of your assets (homes, cars, bank accounts)
- Your ability to pay is based on income minus allowable living expenses
If your offer is less than the RCP, the IRS will likely reject your offer, even if you submit all paperwork correctly.
Example:
| Tax Debt | Your Offer | IRS Likely Response |
| $50,000 | $500 | Almost certainly rejected |
| $50,000 | $20,000 | More likely to be accepted |
Tips:
- Use IRS worksheets to calculate your RCP before making an offer.
- Be realistic and prepare to justify your offer with accurate financial data.
4. Missing or Incorrect Documentation
Submitting your OIC requires several essential forms and documents. An incomplete package is another frequent cause of OIC rejection.
Documents to include:
- Form 656: Offer in Compromise form
- Form 433-A or 433-B (OIC); Your financial information
- Recent pay stubs or income proof.
- Bank and investment account statements (last 3-6 months)
- Proof of monthly expenses (mortgage/rent, utilities, medical bills)
- Copies of all filed tax returns.
You can avoid this mistake by:
- Creating a checklist before submission
- Reviewing IRS guidelines for required documents
- Organizing your paperwork neatly
- Ensuring each form is signed and dated where needed.
5. Failing to Stay Current on Tax Obligations After Applying
Submitting your OIC isn’t the end of your tax responsibilities. The IRS requires you to remain current while your offer is under review and for five years after approval.
Many applicants make the mistake of:
- Falling behind on current-year tax filings
- Missing estimated tax payments
- Accumulating new tax liabilities after applying
This can cause the IRS to deny your application or revoke a previously accepted OIC.
Here’s how to stay compliant:
- File your returns on time every year
- Pay estimated taxes if you are self-employed or have other income without withholding
- Avoid new tax debt while your offer is pending
6. Applying While in Bankruptcy
If you’re currently going through bankruptcy, the IRS won’t even look at your OIC application.
A bankruptcy automatically stops IRS collection activities and places your debts under court supervision. The IRS will return your OIC until your bankruptcy case ends (discharged or dismissed).
Here’s what you need to know:
- Don’t waste time applying for an OIC if you’re in bankruptcy; wait until it’s resolved.
- After bankruptcy, you can file a new OIC if you still owe taxes.
Also Read: IRS Offer in Compromise: Impact on Tax Refunds
Why Do OICs Get Rejected? Decoding IRS OIC Denial Reasons
The IRS often rejects Offers in Compromise (OICs) if it thinks you can pay your tax debt in full, if your offer is too low, or if you have missing tax returns, incomplete paperwork, unpaid estimates, open bankruptcy, or signs of hidden assets or fraud. Staying current on filings and providing complete, honest information can help your chances.
Common Denial Reasons in Detail
- Offer too low relative to your RCP
- Able to pay through an installment agreement (installments preferred if you can pay over time)
- Incomplete or incorrect paperwork
- Past tax filing or payment non-compliance
- Suspected hidden assets or fraud
- Bankruptcy case still open
- Using an OIC to delay collection
Understanding these reasons helps you avoid common pitfalls.
How to Avoid OIC Application Mistakes?
Pre-Submission Checklist
Follow this checklist before sending your OIC to help prevent avoidable errors:
- Confirm all tax returns are filed
- Use the IRS Pre-Qualifier Tool online to gauge your eligibility
- Gather all required documents (see previous list)
- Check all forms for accuracy and signatures
- Calculate a realistic offer amount based on your RCP
- Have a tax professional review your application, if possible
Document Finances Correctly
Be thorough when documenting your financial situation:
- Provide proof of all income sources with recent pay stubs or statements
- Include bank, investment, and property statements
- List debts such as loans, credit cards, and mortgages
- Explain any unusual or large transactions
Clear, honest financial info builds trust with the IRS and helps avoid rejection.
Staying Compliant After Filing
While waiting for your OIC decision, stay on top of your tax responsibilities:
- File all future returns on time
- Pay estimated taxes if needed
- Avoid new IRS debt
Compliance shows the IRS you are serious about resolving your tax issues.
What to Do If Your OIC Is Rejected?
Getting a rejection letter is disappointing, but it’s not the end of the road. You can appeal if you act quickly.
Here’s how to proceed:
- An appeal should be penned down within 30 days of the date of the rejection letter.
- File a request to appeal in Form 13711 (Request of Appeal of Offer in Compromise).
- Address the IRS’s reasons for denial thoroughly.
- Correct errors or submit new ones.
- Make your case stronger through a tax professional.
Acting promptly improves your chances of overturning the denial or preparing a better application.
Latest IRS OIC News and Developments for 2025
- The IRS has boosted OIC processing staff to reduce delays.
- Digital submissions and document uploads are now more common.
- The IRS updated its OIC Pre-Qualification Tool to improve accuracy.
- Despite these improvements, denial rates remain above 50%, primarily due to incomplete applications or low offers.
Stay current on these updates to avoid surprises.
Conclusion
It is hard to address the problem of IRS tax debt on its own. Hall’s IRS, based in Swainsboro, Georgia, specializes in helping taxpayers avoid common OIC application mistakes and navigate this process confidently.
If you want expert help creating a strong OIC application, Hall’s IRS is just a call away. Contact us at (478) 455-4615 or visit our website to schedule your consultation.
Don’t let IRS debt hold you back. Take control of your tax situation now!
Need help? Call Hall’s IRS at (478) 455-4615 or visit hallsirs.com today.
Ready to Apply? How Hall’s IRS Can Help You
Tackling IRS tax debt alone is difficult. Hall’s IRS, based in Swainsboro, Georgia, specializes in helping taxpayers avoid common OIC application mistakes and navigate this process confidently.
With over 20 years of experience, Tina Hall and her team are experts in IRS tax resolution, including Offer in Compromise applications and appeals.
Contact us today:
📞 (478) 455-4615
🌐 https://www.hallsirs.com
We offer personalized consultations to find the best solution for your tax situation. Don’t let mistakes cost you more; get expert help and peace of mind.
FAQ's
It may take several months before completion, but it may take around one year, depending on the complexity of your case and how busy the IRS is.
Yes. It is possible to resubmit another application after correcting the reasons that were given before or a change of financial status.
Form 656, recent income evidence, form 433- A/ B, documents of all tax returns, bank statements.
Your credit may be taken out of the woods after being disengaged from IRS tax liens, but not immediately, since your credit standing may be restored with time.
Yes. It can take the form of an installment payment plan, status of currently not collectible in case you are financially distressed or even penalty abatements.
