Is There Such Thing as IRS Debt Forgiveness?

Chances are, being “one in a million” means that you stand out from the crowd and have something unique to offer. However, being one in a million with respect to the IRS doesn’t have the same meaning. Over 1 million taxpayers owe taxes to the IRS at any one time. If you’re among them, you have plenty of company, and chances are you’re worried about your tax debt.

In order to lighten their workload and to make the best use of existing personnel and resources, the IRS isn’t going to pursue each and every taxpayer. While the IRS does make a good-faith effort to collect taxes that are owed, current staffing and resource levels make collecting from each and every person unrealistic.

In some cases, the IRS is willing to relinquish some of its claim to your tax debt if you owe back taxes. If you’re tight on cash and owe back taxes, there are programs available to you.

Fresh Start

Fresh Start was enacted as a means of clearing tax debt entirely. There are currently two option available to you under this program: Partial Payment Installment Agreement (PPIA) and the Offer In Compromise (OIC).

The PPIA option is the most common under the Fresh Start program. The PPIA allows you to make affordable payments on your IRS account until the debt is cleared entirely or if you have paid the debt for 10 years.

The OIC program allows you to settle your debt with the IRS by paying a mutually-agreed upon amount. You could qualify for OIC if you meet any of these criteria:

  • Have not been turned down for OIC in the past
  • Owe a new debt
  • Are in full compliance with the IRS (no outstanding past debt, or no history of defaulting on prior payment arrangements)
  • Have no plans to file for Chapter 7 bankruptcy or are unable to do so.

You can file for an OIC online or enlist a tax pro to help you file the forms. 

RCP and CNC

Both of these statuses refer to the likelihood of the IRS being able to collect on your tax debt. In doing so, the IRS will asses the Realistic Collection Potential (RCP) of your account. Your tax debt could be designated as RCP if:

  • You’re low-income
  • Have no means to pay the account
  • Have no assets such as bank accounts or real estate the IRS could potentially seize and liquidate in order to satisfy your tax debt.

While your tax debt may not be forgiven altogether, the IRS typically won’t make any collection attempts.

The Currently Not Collectible (CNC) option also prevents the IRS from collecting on your tax debt. This status indicates you also don’t have the means to pay what you owe, and this designation was designed to allow you to slowly increase your income or come up with the means to satisfy your tax debt. Once your account reaches 10 years, the IRS can no longer legally collect from you.

In any case, the IRS cannot legally collect from you if your tax debt is older than 10 years. If you’re facing back taxes, there are program available to you that can take the sting out of owing back taxes.

In any event, you can take the DIY approach or hire a tax pro to walk you through the process and explain your options and rights. It’s always best to check in with a tax pro if this is your first time owing back taxes. Don’t let back taxes get you down. Take charge of your tax debt.

 

 

 

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