You have probably heard a lot about this on TV through somewhat misleading advertisements.  This is how the process works:

Offer-In-Compromise is suitable for persons with huge tax liabilities, but with little or no assets and/or income to pay for it.  The amount of the offer is very flexible, but IRS guidelines state that the taxpayer should offer 80% of net equity in real estate plus 48 times their net monthly income, in general cases.

For example, a taxpayer owes $100,000 to IRS, he has net income of $150 per month after deducting all necessary expenses from gross income, and he is willing to pay in 5 installments.  He has no cash, IRA or investment accounts or life insurance, but is a homeowner.  For this case let’s say the  house's current value is $400,000 and mortgage balance is 310,000.

Even if he owes $100,000 to IRS, he can offer $17,200. From his house he should count $10,000 ( $400,000 x .80 - $310,000 ) and from his net income he should count $7,200 ( $150 per month x 48 ).

Three things are then required:

1. •An application fee of $150
   

2. •20% of the offering amount to be paid upfront with the application
   

3. •All tax returns must be current
   

As tax practitioners, we can offer consulting services for filing the required forms for any individual or business taxpayer, based on an hourly rate.  The outcome is not guaranteed as the IRS may ask for more documents, increase the offering amount or reject the offer.