This is offered by the IRS if a taxpayer is unable to pay a tax debt in full, and cannot feasibly make payments on their tax debt.  From the IRS' standpoint, this should be considered a last resort after exploring other options available to the taxpayer.  What we find is that most people who have tax burdens haven't been able to pay them nor make payments on them and properly cover their living expenses.

What is Offer In Compromise?

An Offer in Compromise is an agreement the taxpayer makes with the IRS that resolves the taxpayer's tax debts.  The IRS has the authority to settle federal tax liabilities by accepting less than full payment under certain hardship circumstances.  The reasons a tax debt can be legally settled through Offer In Compromise are:

• 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 settlement.  To be eligible for a compromise on this basis, the taxpayer must demonstrate that the collection of the tax would create and economic hardship or would be unfair and inequitable.

The IRS warns of false promoters who push people into Offer In Compromise when they haven't had a hardship or are able to pay their tax liabilities.  Be sure to choose the right company when dealing with your tax liabilities.

Next: Is an Offer in Compromise Right for You?