What is an OIC?
We all have rough points in our life, and many people hit hard times and hit them hard. This can involve situations like disease, disability, divorce, business collapse, bankruptcy, unemployment, and more—and the reality the dangers that these threats pose is very real not only to the person going through them, but to their creditors whose money they have used and been unable to pay back.
But all creditors, except back alley loan sharks (this author does not recommend them in any case), recognize that there are situations where their debtors will not be able to pay up without a little grace. This goes for the IRS as well, and the agreement that results is known as an offer in compromise or OIC. An OIC is an agreement that states that the creditor is willing to collect less on the debt, either canceling some of the debt as loss or else extending the payment period or adding interest (the details change).
According to the IRS, an offer in compromise only has a shot at being accepted if the amount offered by the taxpayer is equal to or greater than the reasonable collection potential. And proving this requires some very open financial confessions, detailing assets, liabilities, income, and expenses. Tax debt settlement is therefore a surprisingly involved proceeding that typically involves professional representation, and typically is only eligible for those in very bad financial situations (listed above). As a rule only about 1/4 OIC proposals are accepted by the IRS every year.