If you owe the IRS more than you can realistically pay, an Offer in Compromise (OIC) may allow you to settle your tax debt for significantly less than the full amount. The IRS accepted over 17,000 offers in a recent fiscal year, with the average accepted offer covering just a fraction of the total liability. What Is an Offer in Compromise? An OIC is a formal agreement between a taxpayer and the IRS to settle a tax liability for less than the full amount owed. The IRS considers an OIC when there's doubt about the taxpayer's ability to pay, doubt about the taxpayer's actual liability, or when collecting the full amount would create an economic hardship or be unfair. Three Types of Offers Doubt as to Collectibility This is the most common type. The IRS agrees to accept less because your assets and income are insufficient to pay the full liability before the collection statute expires. Doubt as to Liability This applies when there's a genuine dispute about whether you actually owe the tax. For example, if there's a reasonable argument that the IRS incorrectly assessed the tax. Effective Tax Administration Even if you could technically pay the full amount, the IRS may accept a lower amount if full payment would create an economic hardship or would be inequitable. Do You Qualify? Before investing time and money in an OIC application, consider these eligibility requirements: All required tax returns must be filed You must be current on estimated tax payments (if applicable) You cannot be in an open bankruptcy proceeding You must have a valid extension for the current year return (if applicable) Employers must be current on federal tax deposits The OIC Formula The IRS uses a specific formula to calculate the minimum acceptable offer, called the Reasonable Collection...