Troubled taxpayers settle IRS debts for 12 cents on the dollar.(Knight Ridder Newspapers)

WASHINGTON_Thousands of taxpayers in deep trouble with the IRS settled their tax debts last year for an average of 12 cents on the dollar.

Moreover, the success rate for applicants under the IRS's "Offers in Compromise" program rose 20 percent in 2000, thanks to liberalized IRS debt settlement rules.

One side effect of the program's growing popularity is a backlog of pending cases that has pushed the wait for rulings out to more than a year. The silver lining in that cloud is that the IRS doesn't press collection efforts while cases are pending.

The program's vogue stems from a 1999 drive pressed by Congress to make the IRS more taxpayer-friendly. The IRS agreed as part of it to consider making deals on repayment to taxpayers who could show that paying their full tax bills would create an economic hardship or be unfair.

Before 1999, the IRS would only make a deal if a taxpayer could show that the IRS's bill might be inaccurate or that doubt existed that the full bill could ever be repaid.

Under the new program, taxpayers must document for the IRS how they got into tax trouble, why they can't pay up, and come up with a proposed settlement figure; hence the name "offers in compromise."

John Haralson, a tire store owner in Macon, Ga., said his IRS settlement changed his life. He'd landed in tax trouble in 1993 when his partner failed to pay about $10,000 in withholding taxes for five employees and skipped town. That left Haralson to answer for the debt, which _ with interest and penalties _ had grown to $55,000 by 1997.