Settle Down: If you have a tax debt and are in need of settling, you have a few options available to you. Most taxpayers are not able to pay off their debt in full. If this is your case, and you are unable to pay the IRS through an Installment Agreement, an Offer in Compromise (OIC) may be your best choice.
Last Resort: An Offer in Compromise is an agreement between you and the IRS that resolves tax debt by settling or compromising for less than full payment. An OIC is only considered after all other payment options have been exhausted. This means that you have sorted through the requirements of the other plans and find that you don’t qualify, or you can’t make the payments.
The Choice is Yours: Initiating the process, filing accompanying forms, and paying the $150 application fee are entirely up to you. It’s in your hands and it’s not easy. Acceptance into the program is stringent; the IRS resolves very little of the cases this way so it’s important that if you are applying for the program, you are sure it is one of your final options. Otherwise you could end up wasting time, and money.
The Equation: Basically an OIC is your ability to pay vs. the IRS’ ability to collect.
Ask yourself this question: if the IRS were to take everything from you (your wages, your assets, etc.) would that satisfy the debt? If the answer is no then you may just qualify. However, keep in mind that the IRS has a very specific formula for determining your ability to pay.
Big Picture: The entire process of an OIC may take up to two years just to get accepted. Remember that approximately 83% of Offer in Compromise cases are rejected by the IRS. Speak to a tax professional and make sure that you can qualify; otherwise you may be wasting your time. Make sure the time and effort are worth it, and the hard work will be rewarding when you reap the savings.