An Offer in Compromise ("OIC") is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.
there is doubt as to the amount of your tax liability (unusual),
To make this determination, the IRS has a financial formula that looks at your income and assets to determine your "reasonable collection potential" (RCP). You, the taxpayer, must provide detailed information about your financial situation on IRS Form 433-A (individuals) or Form 433-B (businesses), Collection Information Statement.
You will need to come up with a minimum offer amount as part of your Offer in Compromise. This is the minimum amount the IRS will accept and is based on the financial disclosures you make in your Form 433. Basically, your Offer in Compromise must equal the net realizable value of your assets plus your excess monthly income after subtracting your monthly expenses.
Before you submit your settlement offer to the IRS, you must (1) file all tax returns you are legally required to file (you need to be compliant), (2) make all required estimated tax payments for the current year, and (3) make all required federal tax deposits for the current quarter if you are a business owner with employees.
The Offer in Compromise Booklet, Form 656-B (PDF) has step-by-step instructions for preparing and submitting all the necessary forms for an Offer in Compromise.