Why would the IRS agree to take less money than you owe?

There are three reasons why the IRS might settle for less than you owe:

  1. You might be able to show that it is not clear that you actually owe the money. This is known as an offer in compromise based upon doubt as to liability.
  2. You might be able to show the IRS that based upon your assets and income, you can’t afford to pay them the full amount you owe in a reasonable period of time. This is known as an offer in compromise based upon doubt as to collectibility.
  3. In 1998 Congress authorized a new type of offer in compromise. It is called an effective tax administration offer. Generally, the IRS may allow you to pay less if you can show that it would be unfair to require you to pay the whole amount even though you could afford to do so. These types of offers are relatively rare, and will apply, for example, if you are retired and can only afford to pay the IRS if you sell your home.
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