An offer in compromise is a particular type of contract or discharge of obligation which is available to certain American taxpayers through the Offer in Compromise program associated with the Internal Revenue Service. The IRS Offer in Compromise program allows for some individuals who meet the necessary requirements of the IRS Offer in Compromise program to pay off their debts in a smaller sum than the actual full amount of the debt if they are unable to pay the full amount of the debt.
The point of the IRS Offer in Compromise program is to allow individuals to pay off their debts voluntarily in the best fashion available to them, as this is likely better for both the IRS and the party in question than would be simply continuing to fail to pay debts on the part of the debtor and pursuing payments on the part of the IRS.
In order to qualify for the IRS Offer in Compromise program, one must do one of the following: be able to show that there is some reasonable amount of doubt that the IRS has charged him or her the correct amount of tax liability; prove that he or she will never be able to provide the IRS with the full amount of the debt at any likely point in the future; or prove that paying off the debt would leave the debtor in a state of significant economic hardship. If the debtor falls into any one of these categories, then he or she may apply for the IRS Offer in Compromise program.