As a Tax Attorney, this is one of the most common questions I hear. The next most common question is “if I pay just the tax can I avoid the penalties and interest?”
Generally speaking, the IRS will not settle for less than the full amount owed, except in an Offer in Compromise or OIC. The IRS will settle for what they believe the reasonable collection potential is. Simply put, this means they want an amount equal to the quick sale value of the equity in assets, plus, the amount they believe that they could collect over the next 4-5 years.
In order to settle with the IRS in an Offer in Compromise they must be convinced by your attorney that is more than they will receive if they don’t accept the OIC.
There are many firms that will make claims that they cannot meet, promising to settle your IRS debt for a very small portion of what you owe. Many of these firms promise a settlement, then take your money and they should know that they can’t make an Offer in Compromise work.
In our office we do a careful analysis to see if our clients will qualify for an OIC. Some people do, but many don’t. We pride ourselves on giving honest advice to our clients and not putting people in Offers that have no chance of success.