A tax settlement is an agreement between a taxpayer and the U.S. Internal Revenue Service (IRS) to pay a reduced amount to settle an outstanding tax balance. Tax settlements are uncommon, as the IRS often intends to collect fully what is owed to them, but certain circumstances can persuade the agency to relent slightly. 

In general to be eligible for a tax settlement there must be a significant tax burden owed, as well as some extenuating circumstances that demonstrate why the taxpayer cannot meet their burden. Often these circumstances must be on the level of a debilitating, permanent illness or dire financial situation in order to be found persuasive to the IRS.

Tax settlements use a procedure known as an offer in compromise with the IRS in order to settle the tax balance for a lesser amount. Offers in compromise involve extremely invasive disclosures of all assets, liabilities, and projected future income to the agency and can take several months to negotiate. 

There are three main factors that may make the IRS consider granting a tax settlement:

1. The taxpayer has an illness or disability that makes gainful, long-term employment difficult or impossible. 
2. The amount of taxes owed by the taxpayer is so overly burdensome that it is considered unjust to collect.
3. Even if the taxpayer were forced into bankruptcy to settle the tax burden, they do not have any assets at all that could be sold or claimed to settle the debt.

If one or more of these factors exist, then the IRS may strongly consider granting a tax settlement case. 

If a business or individual has a set of circumstances that the IRS finds to be extenuating, then the potential benefit could be the reduction in taxes owed. If the IRS accepts a tax settlement, the taxpayer may owe mere pennies for every dollar they are in debt. However, in many instances, the IRS will not find the circumstances sufficient to enact this plan. The best many taxpayers can hope for is an extended window to pay back the taxes owed.