The Internal Revenue Service (IRS) is responsible for collecting taxes and enforcing tax laws in the United States. For taxpayers who have fallen behind on their taxes, the IRS offers several options for resolving their outstanding debts, including debt forgiveness, you can also compare debt consolidation vs debt settlement. In this article, we will provide an overview of IRS debt forgiveness, and how it may be able to help you get back on track with your taxes.
What is IRS Debt Forgiveness?
IRS debt forgiveness is a program that allows taxpayers to settle their outstanding tax debts with the IRS for less than the full amount owed. This program is typically reserved for taxpayers who are experiencing significant financial hardship and cannot afford to pay their taxes in full.
There are several different types of IRS debt forgiveness programs, including the Offer in Compromise (OIC) program, the Currently Not Collectible (CNC) program, and the Innocent Spouse Relief program.
Offer in Compromise (OIC)
The Offer in Compromise (OIC) program is the most well-known IRS debt forgiveness program. It allows taxpayers to settle their tax debts for less than the full amount owed if they can demonstrate that paying the full amount would cause undue financial hardship.
To qualify for the OIC program, taxpayers must meet certain eligibility criteria, including:
- Owning no assets of significant value
- Having little or no disposable income
- Having a history of making timely tax payments
If the IRS accepts an Offer in Compromise, the taxpayer must agree to pay the agreed-upon amount within a specified period of time. Failure to do so could result in the reinstatement of the full tax debt, as well as additional penalties and interest.
Currently Not Collectible (CNC)
The Currently Not Collectible (CNC) program is another IRS debt forgiveness option. This program allows taxpayers to temporarily suspend collection efforts by the IRS if they are experiencing significant financial hardship and cannot afford to pay their tax debts.
To qualify for the CNC program, taxpayers must show that paying their taxes would create an undue financial hardship, such as:
- Being unemployed or underemployed
- Experiencing a significant medical illness or disability
- Suffering from a natural disaster or other catastrophic event
If a taxpayer is approved for the CNC program, the IRS will suspend collection efforts for a period of time. During this time, interest and penalties will continue to accrue, but the taxpayer will not be required to make any payments to the IRS.
Innocent Spouse Relief
Innocent Spouse Relief is a program that allows taxpayers who are married but filed joint tax returns with their spouse to be relieved of responsibility for paying any outstanding taxes owed. This program is designed for taxpayers who can demonstrate that they were not aware of their spouse’s tax liabilities at the time the joint tax return was filed.
To qualify for Innocent Spouse Relief, taxpayers must meet certain eligibility criteria, including:
- Filing a joint tax return with a current or former spouse
- Being unaware of any erroneous items on the tax return at the time it was filed
- Establishing that it would be unfair to hold them responsible for the tax debt owed
If a taxpayer is approved for Innocent Spouse Relief, they will not be responsible for paying any outstanding taxes owed on the joint tax return.
IRS debt forgiveness programs can be a valuable tool for taxpayers who are struggling to pay their taxes. Whether you qualify for the Offer in Compromise program, the Currently Not Collectible program, or Innocent Spouse Relief, there are options available to help you get back on track with your taxes. It’s essential to seek guidance from a tax professional to determine which IRS debt forgiveness program may be right for you and to ensure that you are taking the appropriate steps to resolve your tax debts. With the right assistance, you can find a path forward that allows you to regain your financial footing and move past any outstanding tax liabilities.
What is IRS debt forgiveness?
IRS debt forgiveness is a program that allows taxpayers who owe back taxes to the IRS to settle their debt for less than the full amount owed.
Who is eligible for IRS debt forgiveness?
Taxpayers who are unable to pay their full tax liability due to financial hardship, disability, or other extenuating circumstances may be eligible for IRS debt forgiveness.
How much of my tax debt can be forgiven?
The amount of tax debt that can be forgiven varies based on individual circumstances. The IRS will evaluate each case based on the taxpayer’s financial situation and ability to pay.
How do I apply for IRS debt forgiveness?
To apply for IRS debt forgiveness, taxpayers must complete and submit IRS Form 656, Offer in Compromise. This form requires detailed financial information and documentation to support the request for debt forgiveness.
How long does it take for the IRS to process an offer in compromise?
The processing time for an offer in compromise can vary depending on the complexity of the case. On average, it takes the IRS between 6 and 9 months to process an offer in compromise.
Will my credit be affected if I apply for IRS debt forgiveness?
Yes, applying for IRS debt forgiveness can have a negative impact on your credit score. However, if you are already behind on your tax payments, your credit may already be affected.
Can I still apply for IRS debt forgiveness if I have filed for bankruptcy?
Yes, taxpayers who have filed for bankruptcy may still be eligible for IRS debt forgiveness. However, there are certain restrictions and requirements that must be met.
Can the IRS seize my assets if I apply for debt forgiveness?
The IRS may seize assets to satisfy tax debt, but if you are in the process of applying for debt forgiveness, the IRS will generally not take any collection actions during the evaluation of your offer.
Are there any fees associated with applying for IRS debt forgiveness?
Yes, there are fees associated with applying for IRS debt forgiveness. The application fee is $205, but there are exceptions for low-income taxpayers.
What happens if my offer of compromise is rejected?
If your offer in compromise is rejected, you can appeal the decision or request an installment agreement with the IRS to pay off your tax debt over time.
- IRS: The Internal Revenue Service is the government agency responsible for collecting taxes and enforcing tax laws in the United States.
- Debt Forgiveness: The act of canceling or reducing debt owed by a taxpayer to the IRS.
- Tax Debt: The amount of money owed to the IRS for unpaid taxes.
- Penalty: A fee charged by the IRS for failure to pay taxes on time or accurately.
- Interest: The amount of money charged by the IRS for unpaid taxes, calculated as a percentage of the outstanding balance.
- Installment Agreement: A payment plan that allows taxpayers to pay off their tax debt in monthly installments over a period of time.
- Offer in Compromise: A program that allows taxpayers to settle their tax debt for less than the full amount owed.
- Collection Statute Expiration Date (CSED): The date by which the IRS must collect the tax debt or take legal action against the taxpayer.
- Bankruptcy: A legal process in which a person or business declares themselves unable to pay off their debts.
- Tax Lien: A legal claim made by the IRS on a taxpayer’s property as collateral for unpaid tax debt.
- Levy: The legal seizure of a taxpayer’s property by the IRS to satisfy unpaid tax debt.
- Innocent Spouse Relief: A program that allows spouses who were unaware of their partner’s tax debt to be relieved of responsibility for the debt.
- Currently Not Collectible (CNC): A status given to taxpayers who are unable to pay their tax debt due to financial hardship.
- Delinquent Taxpayer Account: A taxpayer’s account that is past due on tax payments.
- Taxpayer Advocate: A person or office that assists taxpayers in resolving disputes with the IRS.
- Voluntary Disclosure: A program that allows taxpayers to disclose unreported income or assets to the IRS without facing criminal charges.
- Wage Garnishment: The legal process of deducting a portion of a taxpayer’s wages to satisfy unpaid tax debt.
- Tax Fraud: The intentional misrepresentation of tax information in order to avoid paying taxes.
- Tax Evasion: The illegal act of intentionally avoiding paying taxes by hiding or misrepresenting income.
- Tax Relief: Any program or method used to reduce or eliminate tax debt owed to the IRS.