Maybe you recently overheard some tax chatter in the break-room or at your local watering hole about the IRS’ offer in compromise (OIC) program. Word is out! The OIC is an effective way for delinquent taxpayers to seek a reduction in the amount of back taxes they owe to the U.S. Treasury. When paying your full tax liability would create a financial hardship or if there is simply no way you can pay what you owe, then an offer in compromise may be the solution.

This segment of the Pew Law Center’s Arizona Tax Essentials series will focus on several important aspects of the OIC, including how taxpayers utilize this IRS program to reduce their overdue tax burden.

What Is the Offer in Compromise Program?

The offer in compromise (OIC) is a settlement agreement between the IRS and the taxpayer –individuals and businesses may use the program, which is purely voluntary. The “offer” in the OIC comes from the taxpayer who offers less than the entire tax obligation. The “compromise” comes into play when the IRS accepts less than what the taxpayer owes in taxes.

Why would the IRS agree to accept less money? Accepting a reasonable offer saves on agency resources, avoids further delays in tax collection, and avoids the necessity of taking further action (such as imposing a tax lien against the person’s assets). Needless to say, there are incentives on both sides of the isle to cooperate. For the IRS to take the taxpayer’s OIC seriously, however, the offer must satisfy specific criteria...