Why would the IRS agree to accept less money than it is owed?

explains that the IRS would of course love to receive the full amount of money owed to it; however, the Internal Revenue Service is aware that in some cases it needs to be more flexible and understanding of taxpayers’ current financial hardships.

would like you to understand that the IRS established the Offer in Compromise Program to help taxpayers who may have difficulty in paying the full amount of their tax debt.

The goal of an Offer in Compromise (OIC) is to resolve the tax indebtedness in such a way that in the federal government and the taxpayer’s best interests, explains
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1.    Doubt as to Liability: would like you to know that this reason involves a taxpayer who can demonstrate that it is uncertain whether the amount of money the IRS claims is owed is accurate.

2.    Doubt as to Collectibility: This reason involves a taxpayer who can show that, based upon the taxpayer’s assets and income, he or she cannot afford to pay the IRS the full amount of the tax debt within a reasonable period of time, clarifies

3.    Effective Tax Administration: In very limited cases, would like you to know that the IRS may allow a taxpayer to pay less if the taxpayer can show that it would be unfair to require him or her to pay the whole amount, even if the taxpayer could pay the full amount.

defines an offer in compromise (OIC) as an agreement between the taxpayer and the IRS.  The OIC is a way to resolve the taxpayer’s tax debt for less than the full amount owed to the Internal Revenue Service, explains

An offer in compromise will not be accepted by the IRS if the Internal Revenue Service believes that the tax debt can be paid in full in a lump sum or through a payment agreement.

would like to point out that the IRS will accept a taxpayer’s OIC if the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP).

The RCP is how the Internal Revenue Service measures a taxpayer’s ability to pay.  sheds light on the fact that the IRS will review a taxpayer’s assets, including real property, automobiles, bank accounts, etc. to determine whether a taxpayer can pay the tax liability in full. goes on to explain that the RCP also includes anticipated future income, less certain amounts allowed for basic living expenditures.
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In order for an offer in compromise to be considered by the IRS, would like you to know that specific requirements must be satisfied:

1.    The taxpayer cannot be a debtor in a current bankruptcy proceeding
2.    The taxpayer must submit a $150 application fee or a signed Form 656-A, Income Certification for Offer in Compromise Application Fee and Payment
3.    The taxpayer must submit one of the following payments with Form 656, Offer in Compromise application:
a.    Lump Sum Offer:  The taxpayer must include twenty (20%) percent of the lump sum offer with Form 656.
b.    Periodic Payment Offer: The taxpayer must include the first installment with Form 656.

Form 656-B, Offer in Compromise Booklet contains all of the necessary information, including worksheets, to file an offer in compromise, clarifies

would like to make it apparent that taxpayers must use Form 656, Offer in Compromise or Form 656-L, Offer in Compromise (Doubt as to Liability), when submitting an offer in compromise (OIC).

advises taxpayers to use Form 656 when there is doubt that the tax liability could be collected in full through a lump sum or an installment agreement.  urges taxpayers to complete Form 656-L when the he or she believes that the tax liability is incorrect.

A taxpayer cannot file both Form 656 and Form 656-L concurrently, explains

In addition to Form 656, Offer in Compromise, would like to point out that a taxpayer must also submit Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or Form 433-B, Collection Information Statement for Businesses.

If a taxpayer submits Form 656-L, Offer in Compromise (Doubt as to Liability), the taxpayer is not required to submit either Form 433-A or Form 433-B, explains

The IRS may consider you in default of the OIC.  would like readers to be informed on the fact that the IRS may reinstate your entire tax liability.  The IRS may file a lawsuit in Tax Court to collect the entire unpaid balance of the offer or to collect an amount equal to the original amount of the tax liability as liquidated damages, clarifies