What is it about the Offer-In-Compromise that's attracted so much attention? When President Clinton signed into law the IRS Restructuring and Reform Act of 1998, it opened the door for taxpayers to potentially have crushing tax debt actually forgiven by the IRS.
According to the Act, a taxpayer could make settlement proposals to the IRS and "plead their case" that they could not otherwise pay the debt by making an "Offer-In-Compromise". Also, according to the Act, while an OIC offer is pending (and 30 days beyond if rejected), the taxpayer's property could not be seized. Although there were (and still are) other ways of paying down the debt with the IRS, this was the only method that had the potential of having a portion of the debt forgiven entirely, until 2005.*
(*In 2005, the IRS implemented the Partial Payment Installment Agreement option, which is also a way that a taxpayer may be able to negotiate with the IRS to pay less than the full debt owed.)
Needless to say, if a person could possibly have the option of having their tax debt erased completely - it's going to attract a lot of attention…and abuse. It seemed as if when the Act was signed into law, "Pandora's Box" had been opened. All of a sudden, late night TV became filled with commercials from "Offers-In-Compromise mills" promising troubled taxpayers the chance to "pay pennies on the dollar to the IRS".
These scams usually just fill out the OIC paperwork, and send it to the IRS regardless if a client meets the criteria for being accepted or not. Either way, the "mills" get their money…even if the client never had much of a chance of being accepted.
Not only has this practice created huge numbers of people getting ripped-off, it may have caused an actual reduction in Offers-in-Compromise are actually being accepted by the IRS.