The LTR 686C is the IRS's formal rejection of your Offer in Compromise. The letter explains why your offer was rejected and informs you that you have 30 days to appeal the rejection to the IRS Office of Appeals.
This is not the end of the road. But you need to act within that 30-day window or it becomes much harder and more expensive to pursue settlement.
Common Rejection Reasons
The IRS rejects offers for specific, identifiable reasons. The most common is that the IRS determined your Reasonable Collection Potential (RCP) is higher than the amount you offered. In plain English: they think they can collect more than what you're offering, either through monthly payments or by liquidating your assets.
Other common reasons include incomplete financial documentation, unreported income or assets the IRS discovered during investigation, a determination that you can pay the full liability through an installment agreement, unfiled returns (you must be current on all filing obligations before submitting an offer), or doubts about the accuracy of your financial disclosures.
The 30-Day Appeal
You have 30 days from the date on the LTR 686C to file an appeal using Form 13711, Request for Appeal of Offer in Compromise. The appeal goes to the IRS Office of Appeals, which is independent from the Collection function that rejected your offer.
Appeals Officers have broader settlement authority. They can consider arguments that the original examiner couldn't or wouldn't. They can weigh the costs of collection against the amount offered. And they can approve offers that the Collection function rejected if the numbers support it.
If you don't appeal within 30 days, the rejection becomes final. You can submit a new offer, but you'll pay another $205 application fee, make another deposit, provide updated financial information, and wait another 6 to 12 months for a decision. The appeal is almost always the better path.
Strengthening Your Appeal
The appeal isn't just a second bite at the same apple. It's your opportunity to present new information, correct errors in the IRS's analysis, and make arguments about your financial situation that weren't adequately considered the first time.
Review the rejection letter carefully. It tells you exactly why the IRS rejected your offer. Your appeal should directly address each stated reason. If the IRS overvalued an asset, provide an appraisal. If they calculated your income too high, provide documentation showing actual income. If they didn't allow an expense, provide proof that it's necessary.
The strongest appeals identify specific errors in the IRS's Reasonable Collection Potential calculation and provide documentation to support a different number. Vague appeals that say "I can't afford to pay" without addressing the math are rarely successful.
What Happens During the Appeal
While your appeal is pending, the offer remains open and the IRS generally won't take collection action. The collection statute continues to be tolled (paused), which is a tradeoff: you get collection protection now, but the IRS gets more time to collect later if the offer is ultimately rejected.
The Appeals conference is typically conducted by phone. The Appeals Officer will review your financial information, discuss the rejection reasons, and consider your arguments. They may request additional documentation. The process typically takes 2 to 6 months.
If the Appeal Fails
If Appeals upholds the rejection, you can submit a new offer with updated financials, pursue an installment agreement, request Currently Not Collectible status, or let the collection statute continue to run. The right choice depends on your specific financial situation and how much time remains on your CSED.
If you've received an LTR 686C, call us at (813) 229-7100 before the 30 days run out. We handle OIC appeals regularly.