If you have substantial tax debt and no ability to pay, you may be able to settle that debt for less than you owe. The Offer in Compromise (OIC) option is a consideration if you don’t have assets or income that would allow you to pay the tax debt.
OICs are divided into three types:
• Doubt as to Collectability – This type of OIC is the most common. It is an option if you owe back taxes and cannot pay them, even if you sold your assets and/or paid in installments within the IRS’s timeframe to collect (generally 10 years from the time of the tax assessment).
• Doubt as to Liability – If you have a legitimate dispute about your tax liability, you can file Doubt as to Liability. You must be able to provide documentation supporting your claim. Often this filing results in a response from the IRS that resembles an audit.
• Effective Tax Administration – This type of OIC would apply if collection of the full liability would create economic hardship (as defined byTreasury Regulation 301.6343-1), or exceptional circumstances exist that would make collection of the full liability detrimental to voluntary compliance.