IRS One-Time Tax Debt Forgiveness: Is It Real?

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How to Qualify for IRS Tax Forgiveness

You’ve probably seen the ads – IRS one-time forgiveness, available for a limited amount of time, apply today. If you see language like this, it’s usually marketing hype. Tax relief firms use this language to entice taxpayers and get them to act quickly.

Here’s the truth – there is no IRS one-time forgiveness program, but if you meet certain criteria, you may qualify for penalty abatement or other types of tax settlements. To point you in the right direction, this post explains why this marketing phrase is so heavily overused. Then, it looks at legitimate options for tax relief.

Key Takeaways:

  • One-time tax forgiveness is a phrase commonly used in tax relief marketing.
  • It may refer to first-time penalty abatement.
  • There are several different types of IRS tax forgiveness options, but they all have strict eligibility criteria.
  • When looking for help with tax debt, find a company that offers transparent services without a lot of marketing hype.

What is IRS One-Time Forgiveness?

The phrase “one-time forgiveness” has now become commonplace when discussing tax debt and the IRS. However, there is no official IRS program with this name. Instead, the tax relief industry has adopted this phrase because it’s useful from a marketing standpoint.

The idea of getting your tax debt forgiven sounds very appealing. If tax debt relief companies convince taxpayers that they have limited time, potential customers will be more likely to sign up for their services. However, before hiring a tax relief firm, you should understand which services they will provide and how they can help you.

Different companies use This phrase differently, but it most likely refers to the IRS’s first-time penalty abatement program. If you have a compliance history and have not incurred any penalties in the last three tax years, the IRS will generally waive your late filing and payment penalties.

Other Misleading Marketing Phrases

One-time forgiveness is not the only phrase that you’re likely to hear when you’re looking for help with back taxes. You may also run into the following:

  • Tax elimination program
  • Zero-tax program
  • Fresh Start Initiative

There are no IRS programs called the “tax elimination” or “zero tax program.” The IRS does offer a few different ways for qualifying taxpayers to settle their taxes for less than owed, but the agency uses much different terminology.

The Fresh Start Initiative was an actual IRS initiative. It referred to a set of changes that the agency rolled out in 2011 to help struggling taxpayers. However, this has never been a program that taxpayers could apply to. Despite that fact, tax relief firms still talk about a limited-time Fresh Start application and use similar verbiage to attract new clients.

Many tax resolution companies use misleading language like “tax elimination program” or “zero tax program” to make it sound like they’ll help you get your tax forgiven easily. They will assist you in applying for the IRS’s existing programs, and although forgiveness is possible, it’s only available if you meet very narrow financial criteria.

To protect yourself from unscrupulous marketing and aggressive sales tactics, ensure that any tax professionals you work with are legitimate attorneys or CPAs so you know you’re not overpaying for misleading services.

First-Time Penalty Abatement – How to Qualify

If you have a compliance history, you should qualify for first-time abatement. Good tax compliance means you have previously been consistent with your tax obligations, including:

  • You have filed the same type of tax return, when required, for the last three tax years.
  • You did not get any penalties during those past three years, or if you did, they were removed for a reason other than first-time abatement.
  • You have not had any failure-to-deposit penalty waiver codes for the last three years.
  • You do not have a failure-to-deposit penalty for Electronic Federal Tax Payment System (EFTPS) avoidance.

You can get relief from the following penalties:

  • Failure-to-file penalties for tax returns, partnership returns, and S corporation returns
  • Failure-to-pay penalties, when the tax owed is late, or the tax owed was not shown on your tax return and is late
  • Failure-to-deposit penalties, when the tax owed wasn’t deposited in the right amount in the required time frame or manner

The IRS will consider granting taxpayers this type of relief no matter the penalty amount, and you may get relief for multiple types of penalties during one tax period. If you’re unsure whether you meet the eligibility requirements, talk to a tax expert for further guidance. To apply, you can call the IRS directly or file Form 843.

Statutory Exception for Penalty Abatement

What if you received the wrong advice from the IRS? It does happen. If this is your situation, you can apply for a statutory exception using Form 843. You may also qualify for this type of penalty relief if you mailed your return on time (but it was received after the due date by the IRS) or if you were in a federally declared disaster area or combat zone.

Other IRS Forgiveness Programs

Here are a few other types of IRS forgiveness programs, with their real IRS names and details on how to apply. Follow the links to resources with more information, or contact us directly at Wiggam Law to discuss the best options for your situation.

1. Reasonable Cause Penalty Waivers

You may be able to have penalties reduced or eliminated if you “acted with reasonable cause and in good faith” but were still unable to comply.

The IRS makes these determinations on a case-by-case basis after reviewing the details you provide and the type of penalty it is, but examples of reasonable cause could be as follows:

  • A natural disaster, such as a flood or fire
  • Death or serious illness of you or an immediate family member
  • Electronic filing system issues that prevent compliance
  • The inability to access applicable records

Unfortunately, the IRS states that a lack of knowledge, reliance on a tax professional, mistakes, or a lack of funds are usually not valid reasons. To apply, file Form 843 or call the IRS.

2. Offer in Compromise

You will provide the IRS with an offer for a portion of your own. The IRS will examine your situation, including whether or not you can pay your income and expenses and any equity in your assets. If the agency finds that your offer is reasonable and is what they can expect to collect from you, they will likely approve it.

To be eligible for an offer in compromise, you also must meet these criteria:

  • You are up to date on tax return filings and estimated payments, if applicable.
  • You do not have an open bankruptcy case.
  • You have a valid extension for the applicable tax year.
  • You are an employer and are current on tax deposits for the current quarter and the last two quarters.

You must send Form 656, Forms 433-A (OIC) and 433-B, a $205 application fee, and your initial offer payment to apply.

3. Partial Payment Installment Agreement

You may also qualify for a partial payment installment agreement if you demonstrate that you cannot make the minimum monthly payments on a standard installment agreement. This program is not an instant tax forgiveness option but can lead to tax forgiveness.

When the IRS sets up the program, you agree to make monthly payments until the Collection Statute Expiration Date. When that date arrives, any remaining tax debt will expire and thus be forgiven. However, while you are making payments, the IRS will review your financial situation periodically. If your finances improve, you will need to make larger payments or pay in full. To apply, contact the IRS or work with a tax attorney. There is no set form, so you generally file Form 9465 with Form 433-F or 433-A.

4. Innocent Spouse Relief

Innocent spouse relief is a unique form of tax relief the IRS offers. If you filed jointly with your spouse or ex-spouse and they understated the taxes you owe on your joint return without your knowledge, you may qualify for relief from paying any additional taxes.

The IRS doesn’t forgive the taxes per se. It simply absolves you of your liability for your spouse’s portion of the tax bill. If you qualify, you will only owe your portion of the tax bill, and then, if needed, you can apply for a relief program on that part of the bill.

However, you can’t claim this type of relief on your own income, employment taxes for the household, payments under the Individual Shared Responsibility, business taxes, or employment tax trust fund recovery penalties.

5. Currently not Collectible (CNC) Status

If you’re unable to pay your taxes, and paying even a portion would mean you couldn’t cover your basic living expenses, you can report to the IRS that your tax obligation is currently not collectible (CNC). Being granted the CNC status will temporarily delay any efforts from the IRS to collect what you owe.

If your situation improves, you will need to repay the tax debt. However, if the debt expires while you are on CNC status, you will not need to repay it. Typically, tax debt expires 10 years after assessment, but some events can extend the deadline.

You may need to complete a collection information statement for CNC, such as Form 433-F, Form 433-A, or Form 433-B, so the IRS can review your financial situation and make a determination.

FAQs About IRS Tax Debt Forgiveness Options

Does the IRS forgive interest?

The IRS generally cannot forgive interest. However, if the IRS removes penalties, it will also remove the interest that was associated with those penalties. Additionally, if you incurred interest due to incorrect written advice, the IRS may be able to remove the interest.

What if I don’t qualify for tax forgiveness?

The IRS typically only forgives taxes in situations where the taxpayer cannot afford the tax or requiring the taxpayer to pay the tax would not be equitable. If you don’t qualify for tax forgiveness, consider looking into a monthly payment plan (aka installment agreement).

Can a tax attorney help me apply for tax forgiveness?

Yes, a tax attorney can help you file paperwork with the IRS and negotiate on your behalf. They also know exactly what the IRS wants to see when you apply and about loopholes that can increase your chance of approval.

What records do I need to obtain tax forgiveness?

Generally, to get taxes forgiven, you will need to provide the IRS with records about your financial situation, including pay stubs, bank account statements, loan documents, appraisals of your assets, and proof of monthly expenses. Detailed records can be critical for getting relief from personal and/or business tax debts.

FAQs About IRS Tax Debt Forgiveness Options

Does the IRS forgive interest?

The IRS generally cannot forgive interest. However, if the IRS removes penalties, it will also remove the interest that was associated with those penalties. Additionally, if you incurred interest due to incorrect written advice, the IRS may be able to remove the interest.

What if I don’t qualify for tax forgiveness?

The IRS typically only forgives taxes in situations where the taxpayer cannot afford the tax or requiring the taxpayer to pay the tax would not be equitable. If you don’t qualify for tax forgiveness, consider looking into a monthly payment plan (aka installment agreement).

Can a tax attorney help me apply for tax forgiveness?

Yes, a tax attorney can help you file paperwork with the IRS and negotiate on your behalf. They also know exactly what the IRS wants to see when you apply and about loopholes that can increase your chance of approval.

What records do I need to obtain tax forgiveness?

Generally, to get taxes forgiven, you will need to provide the IRS with records about your financial situation, including pay stubs, bank account statements, loan documents, appraisals of your assets, and proof of monthly expenses. Detailed records can be critical for getting relief from personal and/or business tax debts.

Applying for Tax Forgiveness From the IRS

Understanding your tax relief options is key to applying for the right program and staying in good standing with the IRS. Anytime you have a tax problem, talk to a tax attorney who can help you determine your options for resolution.

The IRS one-time forgiveness program, or first-time penalty abatement, is a good option if you received an IRS penalty and have a solid history of filing and paying taxes on time. If you don’t qualify, you still have tax relief options, including reasonable cause requests, partial payment installment plans, offers in compromise, and innocent spouse relief.

The good news is that you don’t have to navigate all these tax laws and guidelines alone. When you work with the expert tax attorneys at Wiggam Law, we can assist you with any type of tax issue you’re dealing with and present you with the best path forward for your unique situation.

Call us at (404) 233-9800 or fill out our online consultation form today to discuss your situation with a tax attorney.