It is Internal Revenue Service (“IRS”) policy to accept an offer in compromise (“OIC”) when it is unlikely that the tax delinquency can be collected in full and the amount offered reasonably reflects collection potential. An OIC is a legitimate alternative to declaring a case currently not collectible or agreeing to a protracted installment agreement (“IA”). A protracted IA extends beyond the collection statute expiration date (“CSED”). The ultimate goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the Government.
In general, an acceptable OIC equals or exceeds the taxpayer’s reasonable collection potential. Absent special circumstances, if the tax delinquency can be paid in full via: (i) lump sum payment; (ii) IA extending through the CSED; or (iii) other means of collection, then the OIC will not be accepted.
In order for the IRS OIC program to be successful, taxpayers must make adequate payment proposals consistent with their ability to pay and the IRS must make prompt and reasonable decisions. Taxpayers are expected to provide reasonable documentation to verify their ability to pay. An appropriate OIC reflects that which is in the best interest of both the taxpayer and the Government. An accepted OIC also results in creating an expectation of a fresh start toward compliance with all future filing and payment requirements.
Internal Revenue Manual §5.8.1