7.3.1 General Principles

You have heard TV ads about settling IRS debt for pennies on the dollars? These tax debt settlement firms are peddling help with filing an “Offer in Compromise” (OIC).  An Offer in Compromise (OIC) is a settlement in which the taxpayer offers to pay less than the amount owed. An OIC can provide substantial relief to a qualified taxpayer. Indigent and disabled taxpayers, with no assets, can settle tax debt for very small amounts. The analysis is similar to requesting CNC status, but the attorney will have to argue that the taxpayer’s inability to pay the full liability is permanent.

Tax lawyers at legal aid programs help taxpayers with OIC applications for free. Some private firms scam taxpayers by taking fees as high as $3,000 and then doing very little to get the IRS to approve the OIC. These firms often fail to provide the back-up documents and focused negotiation required for a successful OIC. Some firms also take fees from taxpayers who have no chance of getting an OIC such as taxpayers with substantial retirement accounts or real estate holdings.