One of the programs that the IRS offers to those who cannot pay their tax debt is through Tax Debt Forgiveness. Under this program, there are four different ways that the IRS can drop your tax balances. Finding the best option for you depends on different factors.
See our video explanation below, then keep reading for more information:
If you owe the California Franchise Tax Board, also see our guide on CA FTB tax debt forgiveness.
Four ways Tax Debt Forgiveness can happen
Offer In Compromise is the most favored option in the majority of cases. Some might also call an Audit Reconsideration tax debt forgiveness, but we will cover that in another article.
Picking the right option is key to getting your tax debt resolved. I would not throw “Fresh Start” into this as forgiveness but it did help relax the rules.
Offer In Compromise: The best tax debt forgiveness
An Offer In Compromise is settling for less than you owe. The golden ticket out of tax debt.
Your OIC will be based on:
- Income vs Expenses
- County you live in
Not everyone qualifies but many people do! If income is low but they have assets. They may instead end up filing for Currently Not Collectible Status. CNC is sometimes the best option. If you are not sure having a qualified tax attorney handling your case would help. There are also doubt as to liability Offers, but those are tough!
Currently Not Collectible Status – Debt might expire
Often considered the second best to Offer In Compromise. You might have some assets, but at the end of the month you have not a lot, if any left over. You might just stay in this status if your income stays the same or lower. The IRS only has so long to collect.
Debt Expiration = Indirect Tax Debt Forgiveness!
Avoiding the debt and being out of the country can create a different type of CNC that will extend the IRS statute of limitations.
Penalty Abatement = Removing IRS Penalties
Penalty Abatements are granted by the IRS for “reasonable cause.” The exception is on the first year. First time penalty abatements are usually easy to get as long as the requirements are met. To get a penalty abatement you typically have to pay it off, pay it off besides just the penalties, or be in a payment plan.
Innocent Spouse Requests: Sometimes hard to get
This way of tax debt forgiveness is often not discussed with others because it is more difficult to get at times than just doing an Offer In Compromise.
Conditions for innocent spouse approval:
- Filed a joint return with understatement of tax due to item errors. Erroneous items qualify under two conditions; failure by your spouse to report gross income or incorrectly reporting any deduction, credit, or property basis.
- Establish that at the time of signing the return you had no Actual Knowledge or Reason To Know about the understatement of tax. This means you did not know about the understatement, nor did you have any reasonable way of knowing.
- After taking all details of your situation into account, the IRS finds it unfair to hold you accountable for the understatement of tax.
- You and your spouse or ex-spouse have no transfer of property to one another as part of a fraudulent scheme. Fraud includes the IRS or any other third party
Basically you are saying this is all your spouse or ex spouse’s fault and you should not be held liable for the debt.
Easiest way to get tax debt forgiveness
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