Introduction
You’ve probably seen the late-night commercials or online ads promising to help you “settle your IRS tax debt for pennies on the dollar.” It sounds too good to be true—and for most taxpayers, it is. While the IRS does have a program called the Offer in Compromise (OIC) that allows some people to settle for less than they owe, the reality is far more complicated than the marketing slogans suggest.
In this post, we’ll separate myth from fact and explain what you really need to know about IRS settlement options.
Myth: Anyone Can Settle with the IRS for Pennies on the Dollar
Fact: The IRS only accepts an Offer in Compromise if you meet strict eligibility requirements. The program is designed for taxpayers who truly cannot pay their full tax debt, not for those who simply don’t want to.
The IRS evaluates:
- Ability to pay – Your income, expenses, and assets.
- Future earning potential – Whether you’re likely to earn enough to pay in the future.
- Equity in assets – Home, vehicles, retirement accounts, and other property.
If the IRS believes you can pay through an installment agreement or by liquidating assets, your OIC will be rejected.
Myth: The IRS Will Accept Any Offer You Make
Fact: The IRS uses a strict formula called Reasonable Collection Potential (RCP) to calculate the minimum amount they’ll accept. This includes:
- Net realizable value of your assets.
- Disposable monthly income multiplied by a set number of months.
If your offer is less than your RCP, the IRS will reject it.
Myth: An Offer in Compromise Is the Only Way to Reduce IRS Debt
Fact: The OIC program is just one of several IRS tax debt relief options. Depending on your situation, you may be better served by:
- Installment Agreements – Affordable monthly payments.
- Currently Not Collectible (CNC) Status – Temporary pause on collections if you can’t pay.
- Penalty Abatement – Reduction or removal of IRS penalties if you qualify.
- Bankruptcy – In limited cases, certain tax debts can be discharged.
Myth: You Don’t Need Professional Help to File an OIC
Fact: While you can file on your own, most Offers in Compromise are denied. The application process is complex, requiring detailed financial disclosures and supporting documentation. A tax attorney can:
- Evaluate whether you’re a good candidate before you apply.
- Prepare your financials to maximize your chances of approval.
- Negotiate directly with the IRS on your behalf.
Why the “Pennies on the Dollar” Pitch Is Misleading
The phrase makes it sound like anyone can wipe out their tax debt for a fraction of what they owe. In reality:
- Only a small percentage of taxpayers qualify.
- The IRS accepts an OIC only if it’s the most they can reasonably expect to collect.
- Many taxpayers who apply without guidance waste time and money on applications that are doomed to fail.
Conclusion
Yes, it is possible to settle with the IRS for less than you owe—but only if you meet the strict requirements of the Offer in Compromise program. For most taxpayers, other IRS settlement options like installment agreements or hardship status may be more realistic.
If you’re struggling with IRS tax debt, contact our office today. We’ll evaluate your eligibility for an Offer in Compromise and guide you toward the best tax relief strategy for your situation.
Disclaimer:
This post does not constitute legal advice and does not create an attorney-client relationship, it is merely a general discussion of points of the law and may not be complete or up to date. Please contact our office for a consultation to discuss how tax laws may be relevant to your specific situation.