Under 26 United States Code (USC) 7122, the Internal Revenue Service has established a program called "Offers in Compromise" (OIC) whereby taxpayers can settle Federal income tax liability for less than the full amount owed. 

An OIC can be based on one of three grounds: (1) doubt as to liability which means there is doubt the taxpayer owes the claimed tax liability; (2) doubt as to collectability means the taxpayer's assets and income are insufficient to pay the full amount of tax liability that is owed; and, (3) efficient tax administration means the collection of the full tax liability would cause economic hardship or when other exceptional circumstance exist. 

The IRS conducts an extensive evaluation of each OIC. The taxpayer has the right to appeal a rejection of an OIC if the taxpayer files an appeal within 30 days of receiving the rejection notice, by filing an appeal with the IRS Independent Office of Appeals. The taxpayer must be current on the filing of all past tax returns, but not necessarily be current on all past due tax payments.

The "Fresh Start Initiative" provides more relaxed rules for Offers in Compromise and has expanded access to installment payments, and penalty relief for unemployed taxpayers.

The Fresh Start Initiative and the Offers in Compromise are different programs, but both offer ways for taxpayers to reduce their federal tax liability.