Are You Hoping to Get Your Tax Debt Forgiven?

It can be incredibly nerve-wracking to receive a letter from the IRS in the mail. You may experience a particularly large fright when the letter tells you that you owe money for back tax debt. Unfortunately, this reality is sometimes unavoidable. 

Can You Expect a Letter in the Mail From the IRS?

As we rapidly approach the end of the tax filing season, the likelihood of more people receiving these letters from the IRS increases exponentially. Chances are, many of these individuals previously underestimated their self-employment tax or could not afford to pay off all their tax debt from last year.

In addition to receiving an unwanted letter, folks may be focused on the reality that their back taxes owed to the IRS are subject to more than just the principal amount that was originally due. When you fall behind on your tax payments, you own the original sum plus escalating compounded penalties and interest fees. This inevitably causes your balance to continue growing and makes it more challenging to pay off what you owe.

Is It Even Possible to Get Your Tax Debt Forgiven?

Believe it or not, it is possible to get some or all of your tax debt forgiven. How should you go about this? Well, several options exist to help people in need rid themselves of their tax debt before it takes over their lives. In some instances, you may be able to reduce your debt or even get rid of it in its entirety. 

It isn’t easy, but you may pursue five key potential options if you wish to move toward IRS debt relief. 

Work With a Professional Tax Relief Service

One of the most challenging aspects of attempting to resolve back tax debts is trying to deal with complex negotiations and detailed documentation. Many taxpayers find themselves unable to handle these details and decide to turn to a professional tax relief service to help them resolve their IRS debts. These knowledgeable, skilled professionals will provide you with expert tax representation while compiling all of the required documentation and handling all communications with the IRS. 

Many of these tax relief companies employ tax experts and former IRS agents with the ability to accurately review the full details of your financial situation in order to explore all available relief programs you may qualify for. This will help you help you greatly reduce your tax burden.

Please beware, though, that there are some companies that make unrealistic claims to draw your attention, but their intentions may not be pure. Keep an eye out for reg flags such as outrageous claims to reduce your debt to “pennies on the dollar,” or requesting a payment prior to enrolling in their services.

Take Advantage of the IRS’s Offer in Compromise (OIC) Program

The IRS has an option for reducing tax debt called the Offer in Compromise program. With the OIC, taxpaying Americans who owe back taxes may be able to settle their entire tax debt for a steeply reduced lump sum payment. 

In order to qualify for the OIC option, the IRS will request proof to ensure the sum of your total income and assets cannot realistically cover the entire balance you owe – even with an installment plan for smaller payments. The amount offered for the settlement must be the most the IRS can expect to collect within a given timeframe. This sum will be based on your income, expenses, assets, and future earning potential. 

The IRS sets stringent criteria, so only those who can provide hardship documentation will be accepted into the program. If your application is approved, there will be a condition that requires you to stay compliant on all future taxes. 

Obtain a Status of Currently Not Collectible

In a situation where you are genuinely experiencing financial hardship and therefore unable to pay anything toward your tax debt, you are able to request a status of Currently Not Collectible (CNC). 

This CNC status will provide you with temporary relief from your tax debt. It does not, however, permanently eliminate your debt. It merely delays the IRS collections indefinitely and prevents any further penalties or interest from accruing on your account. 

To qualify for CNC status, you must prove your household income is not sufficient to maintain your basic living expenses, let alone pay your back taxes. The IRS will, of course, require documented proof of your finances, monthly expenses, income, assets, and any circumstances that contribute to your current hardship. 

Filing for Bankruptcy

Folks experiencing extreme financial distress may choose to file for bankruptcy to allow for some of their old tax debts to be forgiven. These debts, however, must meet certain criteria, such as being over three years old, being filed on time originally, and other non-fraud provisions. 

In general, more recent outstanding balances typically don’t qualify to be discharged even with bankruptcy – nor do many other specific types of debts, such as those that were never filed, payroll taxes, or penalties due to fraud. Before filing for bankruptcy, you must note that it can also temporarily damage your credit score. It is vital to fully understand the possible repercussions before traveling down this road. 

Try to Qualify for a Payment Plan

Though a payment plan won’t necessarily result in the forgiveness of some or all of your debt, it will help you find an easier path to dig your way out of the hole. By agreeing to make installment plans on what you owe, the IRS may offer you a short- or long-term payment plan to ease the burden. 

A tax plan will help prevent future penalties from continuing to increase the balance you owe. In turn, this enables you to pay off your tax debt sooner and save money in the long run. 

To qualify for an installment plan, you must first verify your income, expenses, and assets to the IRS. Once approved, you will get a monthly payment schedule, which is based on your ability to pay it. 

Consider All of Your Options

Staring into a deep hole of accumulating tax debt can feel overwhelming. Knowing there are options available to settle or restructure your tax burden can offer some hope.

Before you dive in, carefully explore all your options for resolving your tax debt in order to weigh the pros and cons of each. Then, you can take back control over your situation to resolve the issue with the option that works best for you and your family.