Offer in Compromise
This program was developed by Congress to help collect large amounts of outstanding tax in a relatively short period of time. Their assumption was to offer taxpayers a one-time opportunity to eliminate their debt for a fraction of what was originally owed, thus closing millions of costly collection cases. While the program has been and continues to be modified, it remains the most effective means for both taxpayer and IRS to bring permanent resolution.
An offer in compromise is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax debt. The IRS has the authority to settle, or "compromise," federal tax liabilities by accepting less than full payment under certain circumstances. A tax debt can be legally compromised for one of the following reasons:
- Doubt as to Liability - Doubt exists that the assessed tax is correct.
- Doubt as to Collectibility - Doubt exists that you could ever pay the full amount of tax owed.
- Effective Tax Administration - There is no doubt the tax is correct, and no doubt that the amount owed could be collected, but an exceptional circumstance exists that allows the IRS to consider a taxpayer's OIC. To be eligible for a compromise on this basis, the taxpayer must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable. - Source IRS