Back Taxes Help: Can I Really Get 'Pennies on the Dollar'?

April 12, 2011 — -- With tax day bearing down on thousands of Americans who are having trouble paying back tax debt they already have, the offers made by some tax resolution companies seem almost too good to be true. In one oft-repeated claim, some companies claim they can help taxpayers settle their debts with the IRS for "pennies on the dollar."

But according to the experts, depending on your situation, many of the claims made by tax resolution companies on television are exaggerated and some are outright wrong -- leaving many unwitting taxpayers further in debt than when they started.

Read below to separate some fact from fiction when it comes to back taxes and watch ABC News' "World News With Diane Sawyer" and "Nightline" Wednesday for a new Brian Ross Investigation into the tax resolution industry.

I Can't Pay Everything I Owe, Can I Settle My Tax Debt for Less With the IRS?

It is possible to negotiate with the IRS to get a reduction in the amount of back taxes owed collectively through what's known as an "Offer in Compromise" deal. When the taxpayer cannot pay the amount he owes, he or she can offer a deal with the IRS with what he or she can pay. After the IRS checks out the financial situation, including the taxpayer's current assets, and determine if they should take the deal or hold the taxpayer to what they originally owed.

"If you offer more than they are able to get through their collection efforts, then they are willing to settle for less than the amount owed," Federal Trade Commission Midwest Director Steve Baker told ABC News. "You may end up owing less taxes, but basically... it's a situation where the IRS would never be able to collect the money anyway and they realize that."

What About Paying Back 'Pennies on the Dollar'?

Baker said some people can make a deal in which a taxpayer can pay back "pennies on the dollar," but only "if pennies is all you have."

Since in the "Offer in Compromise" deal the IRS rates what they believe the taxpayer can reasonably pay, the federal agency would have to determine that you were incapable of paying most of your debt.

According to Nina Olson of the IRS' Taxpayer Advocate Service, that is "not an easy thing," and companies that promise to significantly slash debts are not being straight with their customers.

"You have to show the government, you have to show the IRS, that they are not going to get any more money out of you than pennies on the dollar," Olson said. "But to say that you'd be able to do that routinely is just not true."