An Offer in Compromise is an agreement between you, as the taxpayer who owes money, and the IRS, who wants to collect the money. This agreement settles your tax liabilities for less than the full amount you allegedly owe. There are three types of OICs:
Doubt as to Collectability. Doubt exists that you may never be able to pay the full amount of the taxes, penalties, and interest you owe within the time remaining in the collection statute.
Doubt as to Liability. Doubt exists as to the accuracy of the tax liability assessment. On the one hand, you may have been improperly assessed penalties or an examiner during a tax audit failed to properly review all the evidence.
Effective Tax Administration (ETA). The IRS may entertain a compromise even when the assessed tax is correct, and you could potentially pay the full amount, but an extraordinary circumstance exists. An extraordinary circumstance is a situation where paying the tax in full could create an economic hardship or would be unfair, inequitable, or against public policy.
An experienced tax law attorney will identify and help prove which OIC type applies in your situation. Getting it wrong can mean delays, and delays could mean the accrual of more tax liabilities.