The IRS has announced more flexible offer in compromise terms, in an effort to make it easier for financially distressed taxpayers to get a "fresh start" by erasing their tax liabilities, and may also result in less time taken for the process (2 years instead of 3-5 years). See IR-2012-53 (may 21, 2012). See also Form 656-B, Offer in Compromise Booklet, and Form 656, Offer in Compromise and Interim Guidance Memorandum
The main changes include:
The revision to calculations of future income are significant. In the past, the Service attempted to look forward 4 years. Now, if the liability will be paid within 2 years, the Service only looks one year ahead. Further, permitting delinquent federal taxpayers to repay student loans and pay local and state taxes due seems a worthy step. If there isn't enough money to pay all of the federal taxes, it makes sense to allow the taxpayer to pay local taxes due. States and municipalities are still suffering from the recession, and this will be a small measure of benefit there as well as to the individual taxpayers.