Can penalties and interest be compromised under an OIC?
Yes. Penalties and interest can both be compromised in the same way as the underlying tax liability. In fact, in submitting an offer, you must include all owed taxes, plus penalties and interest, for your offer to be considered. However, if penalties are your major concern, then consider an abatement, particularly if you have reasonable grounds for the IRS to waive the penalty. The abatement process is far simpler than an OIC, and it is your proper remedy when you can pay the tax, but believe you have justification for being excused from the penalties.
