IRS Forgiveness: Taxpayer Guide to Tax Debt and Penalty Forgiveness

Couple celebrates getting out of tax debt

IRS forgiveness is when the IRS settles your taxes for less than you owe or removes penalties from your account. There is not one set IRS forgiveness program that fits all. Instead, many different programs fall under this umbrella. This guide explains how IRS tax forgiveness works, who qualifies, and how to apply.

Want to explore options for reducing your tax debt right now? Then, contact us at (404) 233-9800 today to schedule a consultation. At Wiggam Law, we focus on tax debt resolution, and we are committed to getting our clients out of tax debt as quickly and as inexpensively as possible. However, the right solution varies — we always customize our advice around our clients’ unique situations.

Does the IRS Ever Forgive Back Taxes?

Yes, the IRS often forgives back taxes. If you qualify, you may be able to get taxes forgiven through an offer in compromise (OIC), a partial payment installment agreement (PPIA), or innocent spouse relief. Depending on the situation, you may also be able to get forgiveness by appealing the tax debt. Read on to learn more about your potential options.

Tax Forgiveness Through Offer in Compromise

An offer in compromise is when the IRS lets you settle your back taxes for less than you owe. There are three different types of offers in compromise, and they all have very specific application criteria. Take a look:

  • Doubt as to collectibility — Through this program, you make an offer based on the equity in your assets and your disposable income. Generally, if you prove that your offer is the most you can afford to pay given your current financial situation, the IRS should agree to the settlement.
  • Effective tax administration — In cases where it would be unfair to force you to pay the full tax bill, even if you do have the means of paying the debt, you may be able to negotiate with the IRS to waive some of your tax debt.
  • Doubt as to liability — If there is a legitimate doubt that you really owe the tax bill, the IRS may reduce it. This program requires strong knowledge of the tax code so you should work with a tax professional.

The IRS accepts less than half of all OIC applications. To increase your chances of approval, you should work with a professional who understands this program.

Partial Payment Installment Agreement

Through this program, you make monthly payments on your tax debt until the collection statute expiration date (CESD). Once this date passes, the IRS waives the remaining balance. Keep in mind that if you select this option, the IRS will review your situation every two years. If your finances improve, the agency may require you to pay more money.

Innocent Spouse Relief

Innocent spouse relief allows taxpayers to get relief on tax debts incurred by their spouses. When you file a joint tax return with your spouse, you are jointly liable for the tax debt. However, in rare situations, you may be able to separate your tax bill so that you are only liable for the taxes associated with your income.

Here are a few examples of when you may be able to get tax debt forgiven through this program:

  • Your spouse earned income without your knowledge and didn’t report it on the original tax return. Then, the IRS discovered the income and assessed additional tax and penalties.
  • Your spouse understated the tax due on the return without your knowledge. This can happen when your spouse underreports income, claims excess deductions, or takes credits incorrectly.
  • Your spouse coerced you into signing the tax return or otherwise filed the returns without your full knowledge.

There are a few different versions of the innocent spouse program. In some cases, you can get relief while you’re still married, but in other cases, the marriage must be over due to death or divorce before tax relief options can be considered.

Tax Appeals

Successfully appealing a tax assessment is not the same as getting forgiveness of a tax debt. Instead, you’re using the appeals process to convince the IRS that you don’t really owe the tax in the first place.

For example, if the IRS audits you and assesses a tax, you have the right to appeal. During the appeal, you will present your side of the story and explain why the tax should not be assessed or why it should be a different amount.

You have a limited amount of time to appeal an assessed tax. If you miss the window, you may be able to pay the tax and then request a refund. Or you may be able to take advantage of an offer in compromise based on doubt as to liability.

What is IRS One-Time Forgiveness?

There is no IRS program named “one-time forgiveness,” but tax debt resolution companies sometimes use this phrase as a marketing hook. In most cases, they’re actually referring to the IRS’s first-time penalty abatement program. If you have filed all required returns and haven’t incurred penalties in the three years prior to tax year connected to your debt, the IRS will generally forgive the penalties.

However, the IRS doesn’t just wipe out penalties automatically. You need to apply for this program. You can contact the agency directly or file Form 843 (Claim for Refund and Request for Abatement). If you’re looking for other types of tax forgiveness, we can help you figure out which relief forms you need to file.

Does the IRS Forgive Tax Debt After 10 Years?

The IRS can only collect tax debts ten years after the tax was assessed. This is called the collection statute of limitations. Once the Collection Statute Expiration Date (CSED) passes, the agency can no longer try to collect the tax debt. This means that tax debt “expires” after ten years.

It’s important to note that the IRS often increases collection actions when the debt is about to expire. If you can avoid the IRS for 10 years, you may be able to get out of paying your tax bill, but this is extremely hard to do. If you have a job or a bank account, the IRS can find you fairly easily.

However, you may be able to leverage the statute of limitations to your advantage. The partial payment installment agreement (PPIA), in particular, requires you to make small monthly payments until the collection statute expires. Then, the rest of the bill just goes away.

Alternatively, you can apply to get your account marked as currently not collectible. If you maintain this status until the collection statute expires, the tax bill will expire before the IRS gets a chance to collect on it.

IRS Forgiveness as a Marketing Hook

You may have heard the phrase “IRS tax forgiveness” in commercials or heard about it on the radio. Large tax debt resolution companies often use this phrase as a marketing hook. They are trying to appeal to people who are stressed out about large tax bills.

When you call one of these companies, a sales rep will answer the phone. This person is usually not a tax professional, and because of that, they aren’t bound by the same ethical guidelines as tax professionals. They may not understand your situation, and they will often tell you that you can qualify for a tax forgiveness program whether you really can or not.

If you contact someone who tells you that you can definitely get a settlement without asking detailed questions about your situation, you shouldn’t work with them. The IRS is the only entity that can approve a settlement on your tax bill. An experienced tax attorney will be able to give you a good idea of whether or not you’ll qualify for a settlement, but only after they’ve talked with you about your financial situation.

Get Help With Your Tax Debt Now

At Wiggam Law, tax resolution is what we do, and we strive to help our clients reduce their tax debt and regain peace of mind.

Tax forgiveness is never guaranteed, and the right approach varies based on the situation. Looking for ways to reduce your tax bill? Wondering what’s the best move? Then, let the experienced tax attorneys at Wiggam Law guide the way. Contact us at (404) 233-9800 or schedule a consultation today.