Offers in Compromise In IR-2011-20, the IRS states that it is expanding a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers. This streamlined OIC is being expanded to allow taxpayers with annual incomes up to $100,000 to participate. In addition, participants must have tax liability of less than $50,000, doubling the current limit of $25,000 or less. OICs are subject to acceptance based on legal requirements. An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay. Under section 7122 and the regulations under section 7122, the IRS settlement has been based on the “reasonable collection potential” of a taxpayer (i.e., based “ability to pay). See IRS Policy Statement P-5-100. That concept is inconsistent it a focus on annual income. In short, the IR-2-11-20 contradicts itself and reflects the fact that the IRS is making a decision that makes no sense at all.