Owing back taxes to the IRS can be stressful, especially since penalties and interest can build up quickly. It’s no wonder so many taxpayers search for “IRS tax forgiveness” or get taken in by advertisements offering a quick fix. However, there isn’t anything called the IRS forgiveness program; instead, it’s a marketing phrase used by big tax relief firms to lure in people with tax debt.
However, that doesn’t mean that tax forgiveness isn’t an option in the right situation. The IRS offers many tax relief solutions for those facing financial hardship. Understanding which you’re eligible for and which applies to your specific situation is the first step in the process.
In this guide, we cover the legitimate relief options, how you can propose them, and which may suit your situation. To get help now, contact us at East Coast Tax Consulting Group today.
Key Takeaways
- There is no official “IRS tax forgiveness” program. Legitimate relief programs do exist, but each has a strict set of eligibility requirements.
- Avoid companies offering one-size-fits-all solutions. advertisements and articles offering “IRS back tax forgiveness” can be misleading, so always do your research before committing.
- Understand the relief routes. Options include an Offer in Compromise (OIC), a Partial Payment Instalment Agreement (PPIA), and the Currently Not Collectible (CNC) status.
- You can make payments on tax debt. If you don’t qualify for a relief program, you may need to set up monthly payments.
- Contact a qualified tax professional first. An expert can analyze your financial situation and determine which IRS relief route you may be eligible for.
What “IRS Tax Forgiveness” Really Means
First up, let’s talk about what IRS tax forgiveness means. You might have seen articles or advertisements mentioning “one-time forgiveness” plans, “zero tax programs”, or a “tax forgiveness initiative”. An advertisement promising “instant IRS back tax forgiveness” is likely to catch your attention.
Don’t believe the hype. If it sounds too good to be true, that’s because it is.
Be wary of companies offering you quick fixes or talking about the Fresh Start Program. Anything that offers guaranteed acceptance, a “government-approved program” language, or promises to get rid of your debt without a review is suspicious. These companies are using misleading advertising to draw you in to pay for their services.
Unfortunately, the IRS will not wipe your tax debt simply because you ask them to. However, there are some legitimate programs to help you manage your debt.
There are two main ways to get taxes waived or forgiven:
- Legal time limits that define how long the government can collect back taxes.
- Structured IRS programs designed for taxpayers facing genuine financial hardship.
The following sections explain both of these options in greater detail.
How Long Does the IRS Have to Collect Tax Debts?
The IRS can only collect tax debts within a 10-year period. When that deadline passes, after the Collection Statute Expiration Date (CSED), the agency can’t legally pursue collection. It doesn’t matter how much you owe; your debt effectively disappears.
The clock starts on your assessment date. Typically, that’s the day you file your return or the return due date if later. Should the IRS audit you, your assessment date will be the date they finalize the liability related to the audit. However, there are times when the clock will stop, and the extra time will be added to the end. For example, in cases of bankruptcy, an Offer in Compromise (OIC), and a Collection Due Process Hearing.
You can check your online IRS account to see the expiration dates for your tax debts. Be aware, however, that the agency often makes mistakes in calculating the CSED. So, you may want to consult with a tax pro for help.
Legitimate IRS Programs to Reduce (or Wipe) Debt
The IRS does offer legitimate options for taxpayers facing financial difficulties, and these options can help you get your tax debt partially forgiven. Each of these routes has a specific set of requirements. Of course, none of them guarantee acceptance, but enlisting the help of a tax expert will increase your chances of approval.
Here’s a rundown of the IRS programs that you may consider:
Offer in Compromise
An Offer in Compromise allows you to settle your back tax debt for less than the full amount you owe. However, it is subject to strict eligibility and is by no means guaranteed. You need to fill out detailed financial documentation and attach bank statements, pay stubs, asset valuations, and proof of your monthly expenses.
You need to pay an application fee and make an initial payment. Normally, the IRS will only approve a settlement if it is the most you can afford to pay based on your income and assets. However, in cases where it would be inequitable to force you to pay the full balance or even the usual settlement, you can apply for a lower settlement based on effective tax administration.
If your proposal is accepted by the IRS, you then need to make sure you stay up to date on all your filing and payment requirements for the next five years. If not, the agency can retroactively rescind the offer. If you’re not sure where to start, contacting a tax expert can help you determine if this route is right for you.
Partial Payment Instalment Agreement (PPIA)
Next up, a Partial Payment Instalment Agreement (PPIA) means that you pay a reduced amount over time. Unlike a standard payment plan in which you pay the full tax debt over time, PPIAs involve making monthly payments that will not be enough to cover the full tax debt.
To apply for this agreement, you propose a monthly payment plan based on what you can afford to pay after your living expenses. You will also need to submit either Form 433-A if you’re an individual or Form 433-B for a business. Those forms request detailed information about your income, expenses, debts, and assets. The IRS will then review your financial information and either accept the proposal, counter with a different monthly payment amount, or reject it entirely.
If your offer is accepted, you will make payments until the CSED. At that point, the remaining balance of your debt will be written off completely. This works if you owe more than you could pay within the 10-year collection window. Note that the IRS will revisit your financial situation periodically (typically every two years), and they will demand larger monthly payments if your finances improve.
Currently Not Collectible (CNC)
If the IRS determines your debt to be Currently Not Collectible (CNC), the agency will temporarily pause any collection activities on your account. That means no wage garnishments, bank levies, or other collection tactics.
If you’re currently facing financial hardship, this status may give you the breathing room to get back on your feet before the IRS takes further action. However, it does not make the debt disappear, and you will still owe the same amount of back taxes.
This status is not automatic. To apply for it, you’ll need to submit a Form 433-F (Collection Information Statement) and provide supporting financial documentation.
The IRS will then compare your monthly income to its allowable living expenses. These include any costs you must cover for:
- Housing
- Food
- Utilities
- Transportation
- Healthcare
If you’re spending more than the IRS’s allowable amounts, the agency will typically not approve your request for CNC status.
The CNC status is not permanent. The IRS will review your account regularly. If your financial situation improves, they may contact you and restart the collection process.
When you’re close to your CSED, applying for the CNC status can be a strategic move. If the clock runs out while you maintain this status, you may never have to repay the debt, as the IRS will lose its legal right to collect it.
IRS Relief That Doesn’t Reduce the Tax Debt Owed
Not every IRS relief option lowers the overall tax debt you owe. Some simply make your life easier while you’re repaying your back taxes. Here are two options you may consider:
Installment Agreements
Installment Agreements allow you to spread the burden of your tax debts over several years. While this does not reduce your debt, it may make it easier to manage. The IRS has several types of installment agreements, including:
- Guaranteed payment plan – get up to three years to pay up to $10,000 in tax debt, with no financial details required.
- Simple payment plan – get up to 10 years (or until the CSED if sooner) to repay up to $50,000 in tax debt, no financial details required.
- Non-streamlined installment agreement – get up to 10 years (or until the CSED if sooner) to repay up to $250,000 of tax debt. Financial details are typically only required when a revenue officer is assigned to your case or you have a history of default.
- Routine/Negotiated installment agreement – taxpayers who can fully pay their tax debt but don’t qualify for one of the above agreements must provide detailed financial information. This information will determine the terms of the agreement.
Penalty Abatement
While Penalty Abatement does not reduce the amount of taxes you owe, it helps reduce the overall balance due by removing penalties. If there are multiple penalties on your account, this can help you save a lot of money. Plus, the IRS will remove any interest that was incurred on the penalties.
You may be able to apply for either a First Time Penalty Abatement (FTA) or a Reasonable Cause Abatement. FTA typically applies if you haven’t incurred any penalties in the three years prior to the year that you’re seeking abatement. Reasonable cause applies if you failed to file or pay on time due to circumstances out of your control. Of course, the criteria for these abatements are strict, and you’re more likely to be approved if you work with a trusted tax expert.
Frequently Asked Questions (FAQs)
Is IRS tax forgiveness real?
The short answer is yes, but an “IRS tax forgiveness program” does not exist under that name. If you call the IRS to ask about their “tax forgiveness program”, they may not know what you’re talking about. However, there are several real IRS programs that can offer debt relief or even partial or full forgiveness of the tax debt.
When companies advertise “tax forgiveness,” it can be misleading. The IRS will not forgive your debt in many scenarios. However, if you can prove that you qualify for one of the programs we’ve outlined in this guide, you may get accepted.
What is the one-time IRS tax forgiveness program?
There is no official “IRS one-time tax forgiveness program”. If you see this phrase on advertisements or articles, it may refer to First Time Penalty Abatement, an Offer in Compromise, or the Currently Not Collectible status.
Can the IRS really wipe out my tax debt?
Yes, the IRS can wipe out your tax debt if the agency accepts an Offer in Compromise or when the Collection Statute Expiration Date passes. However, it’s important to understand the specific criteria for each of these tax relief options before you pursue one.
When to Seek Professional Help
Taking early action can save you money and reduce the penalties on your account. As soon as you realize you’ve fallen behind, you should take action. Getting ahead of IRS collection action is the only way to protect your assets and take control of the resolution process.
Contact a qualified tax professional to help you determine which option is right for your circumstances. An expert can analyze your financial circumstances and identify which programs you are likely to qualify for. That stops you from wasting both time and money in the long run.
Even the smallest errors on IRS relief applications can lead to rejections. Don’t take the risk. When you work with a CPA or tax expert, they can handle your communication with the IRS, complete applications on your behalf, and respond to any additional requests swiftly.
At East Coast Tax Consulting Group, we deliver experienced guidance for resolving tax debt. Contact us to schedule a consultation and take the first step toward resolving your tax problems.