You may qualify for an Offer in Compromise if you are unable to pay your taxes in full or if you are facing severe or unusual economic hardship.

An Offer in Compromise is an agreement between a taxpayer and the IRS that resolves the taxpayer’s tax liability for less than the full amount due. The IRS has the authority to settle, or compromise, federal tax liabilities by accepting less than full payment under certain circumstances. This applies to all taxes, including any interest, penalties, or additional amounts arising under Internal Revenue laws.

To obtain a successful Offer in Compromise, the IRS must be convinced that the amount being offered by the taxpayer is more than the IRS would be able to collect through the use of their normal collection procedures.

The IRS may legally compromise for one of the following reasons:

• Doubt as to Liability – “I do not believe I owe this amount.”
• Doubt as to Collectibility – “I have insufficient assets and income to pay the full amount.”
• Exceptional Circumstances (Effective Tax Administration) – “I owe this amount and have sufficient assets to pay the full amount, but due to my exceptional circumstances, requiring full payment would cause an economic hardship or would be unfair and inequitable.”

An offer in compromise is hard bargaining, lots of documentation, and often a long and exasperating process that generally takes anywhere from six months to two years, but this is the price you pay when you owe taxes and want a fresh, tax-free start.