An Offer in Compromise or OIC is an agreement with the IRS or State taxing agency and the taxpayer that settles the taxpayer’s liabilities for less than the full amount owed. To qualify, the taxpayer must have filed all required tax returns (Under certain circumstances the IRS may not require you to file a tax return for a particular tax year). Qualifying for an Offer in Compromise may allow a taxpayer to only pay a very small fraction of what they owe, many times resulting in saving thousands of dollars.

The IRS may accept an OIC for one of the 3 following reasons:

This is directly from the IRS website:
“First, the IRS can accept a compromise if there is doubt as to liability. A compromise meets this criterion only when there’s a genuine dispute as to the existence or amount of the correct tax debt under the law.
Second, the IRS can accept a compromise if there is doubt that the amount owed is fully collectible. Doubt as to collectibility exists in any case where the taxpayer’s assets and income are less than the full amount of the tax liability.
Third, the IRS can accept a compromise based on effective tax administration. An offer may be accepted based on effective tax administration when there is no doubt that the tax is legally owed and that the full amount owed can be collected, but requiring payment in full would either create an economic hardship or would be unfair and inequitable because of exceptional circumstances.”