You may have already heard that it is sometimes possible to settle your tax debt for less than the full amount that you owe.
What you heard is correct, through a procedure called offer in compromise (OIC). But as with so many things in life, the devil is in the details.
The IRS has considerable discretion in deciding whether to approve an OIC. How much should you offer, to give the agency a good reason to accept, on terms that make sense for your situation?
For starters, consider this: the IRS generally only accepts an OIC when the amount is essentially about what the agency could reasonably expect to be able to collect in a realistic amount of time.
That is why the IRS recommends that you consider other payment options (such as installment agreement) first before trying for an OIC.
The IRS will have a very good picture of what you are able to pay. This is because you'll have to submit detailed financial information as part of your application for an OIC.
As an individual, submitting this information involves completing Form 433-A; for a business, the form is 433-B. There is also a separate Form 656 required for tax debt.
If you're just getting started in considering your options, you can use the IRS's online pre-qualifier tool to get a sense of where you stand.
If you're serious about pursuing an OIC, however, working with a knowledgeable tax attorney is a logical next step. An attorney can advocate for your position in dealings with the IRS and negotiate on your behalf for OIC terms that make sense for both sides.