Such is the language of Offer-in-Compromise promoters. What they fail to tell you is that one has to qualify for an Offer and few taxpayers meet the tough standards.

The Offer-in-Compromise (OIC) has been around for a long time, but it wasn't until 1992 that IRS began using the program in good faith.

After the Revenue Reform Act of 1998, IRS became more liberal with the OIC. At one point almost half of all Offers were accepted. Unfortunately, in 2002, the IRS started getting tough on Offers and now only about 25% are accepted. The main reason for the decline was the centralization of Offers at two IRS locations instead of being worked locally at district offices.

An Offer can be made for "Doubt as to Liability" or "Doubt as to Collectability."

Submitting a proper OIC is more than just filling out an IRS Form 656. A good offer must have 3 recent months of supporting documentation attached with the Form 656 (if the OIC is for doubt as to collectability). Failure to fill out the Form 656 properly, failure to include all liabilities, or failure to provide the documentation required results in an Offer that is dead on arrival. Even if the forms are complete; the Offer is just "processable." It may take 6-9 months to reach a decison on the merits of the OIC.

Unscrupulous Offer Promoters often don't qualify people for the Offer, they just sell them a bill of goods. Often, the online ads you see are for companies where you talk to a salesman who calls himself a "tax consultant."

Folks can pay thousands and not have a chance at an OIC to begin with! Don't do business with someone who doesn't take a full financial statement. If the matter is Doubt as to Liability, no financial information is required, but there needs to be a solid basis for the claim in law and policy.

The main items that disqualify an Offer are assets like IRAs, 401Ks and home equity.

If you owe the IRS 25K but have an IRA worth 50K and home equity of 50K, forget about an OIC! There would have to be a horrible circumstance in your life to get past the equity in assets. Exceptions can be made in very rare cases of health or old age. Just because you can't pay your bills on time doesn't make you an Offer candidate. You must not be able to pay in full based on income and expenses plus the "quick sale" value of your assets. Only then is a Doubt as to Collectability Offer an option.

If you qualify, you really can settle for "pennies on the dollar," but it might be 30-50% of your debt based on the math.

To settle for $500 you would have to be broke with no assets at all and no prospects for near term improvement of your financial situation.

See a CPA, Tax Attorney, or Enrolled Agent if you are considering an Offer. They can go over all of your options.

Learn more about Offers-in-Compromise at these websites: