If taxpayers are unable to pay a tax debt in full , and an installment agreement is not an option, then they may be able to take advantage of the offer in compromise (OIC) program.  Generally, the OIC program should be viewed as a last resort, after taxpayers have explored all other available payment options.  The IRS resolves less than one percent of all balance due accounts through the OIC program.

What is an Offer in Compromise?

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.

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