How Does IRS Debt Forgiveness Work & How Can I Qualify for It?
In 2020, IRS debt forgiveness opportunities are abundant again! In fact, it’s never been easier to get your IRS Back Tax Debt forgiven.
Whether you owe the IRS thousands or tens of thousands of dollars in back taxes, you’re likely to be eligible for some sort of tax forgiveness program.
But perhaps the best news about IRS forgiveness is that the worse your financial outlook is, the more tax forgiveness you’ll be offered.
If you’re having trouble with the IRS, then keep reading, because on this page I’ll teach you how to wipe out some or all of your tax debt without having to pay for help from an IRS Tax Resolution Service.
What Is The IRS Tax Debt Forgiveness Program?
There is no actual “Program” called “IRS Tax Forgiveness”, but there are a series of different ways to write-down or write-off some of your unpaid back taxes.
Why would the IRS allow you to receive forgiveness for money that you owe them?
It’s simple, really… it’s illegal for the IRS to collect money from someone who literally cannot afford to pay it.
The rule regarding IRS debt collection practices is that they are not allowed to enforce any collection action which would lead you, the American taxpayer, into a financial disaster or crisis.
When the IRS is attempting to collect money from someone in a near-disastrous financial situation, their only hope to get any of the money is to allow the taxpayer to write off some of his or her debt.
And that’s good news for you, especially if you owe the IRS a ton of money, but have no way to pay them back.
How Does IRS Debt Forgiveness Work?
No matter which actual program you end up choosing to pursue (I’ll go through those in detail below, so keep reading), you’re going to have to prove to the IRS that you literally cannot afford to pay back whatever it is that they’re claiming you owe them.
The crux of the entire approvals process is to convince them that collecting the money they want from you would ruin your life, cause you to lose a home or business, default on loans, etc.
The worst the financial repercussions appear to be, the easier it’ll be for you to get the IRS to accept some kind of write-down or write-off, and get yourself approved to receive tax debt forgiveness from the IRS.
9 Federal Tax Forgiveness Programs
This year, there are 9 different ways to receive some form of IRS tax forgiveness.
Depending on your unique financial situation (though mostly based on the difference between how much you owe, and what it looks like you can afford to actually pay), you’ll need to choose which of the programs below work best for you.
Some people who owe the IRS back taxes choose to pay an expert to help them negotiate an IRS Tax Debt Settlement, but I want to make it crystal clear that you can do everything these companies do for you entirely on your own, and all for free.
This is especially true if you’re the type of person who has time and the inclination to learn about a complicated topic, put together convincing arguments, and who isn’t afraid to negotiate and/or battle with the IRS directly.
If, however, you’re the type of person who doesn’t have the time to research a complicated legal matter (tax debt is not simple or straightforward), or who isn’t very good at producing compelling arguments, negotiating, etc., then you may get better results by paying someone else to resolve your tax problems for you.
The rest of this page will assume that you’re the type of person who wants to handle this process on your own. If you’d like to get assistance with IRS tax forgiveness, then don’t bother reading the rest of this content and simply call the Tax Debt Relief Helpline at: 888-692-7108.
This is a service that you’ll end up having to pay for (if you choose to have them resolve your problems for you), but the initial call and consultation is free.
Should you decide to go it alone, and pursue IRS tax debt forgiveness without assistance, the programs below will be your best opportunities for finding effective debt relief.
1. The IRS Fresh Start Initiative
The IRS’s Fresh Start Initiative was recently expanded to allow more taxpayers access to financial assistance benefits.
Based on the changes to the program, it’s become significantly easier to receive IRS forgiveness, especially because you no longer need to provide so much financial information to the IRS for them to determine your ability to repay whatever debt you owe.
Before they relaxed the regulations, the IRS’s Fresh Start Initiative required a complicated, future earnings analysis in order to determine how much each taxpayer was capable of paying back, and thus, how much of their outstanding debt the IRS should write off.
Under the old regulations, applying for a five month repayment plan would require an analysis of 4 years of future income, but the new regulation only requires an analysis of a single year of future income.
And under the old regulations, applying for a 6 month to 2 year repayment plan would have required an analysis of 5 years of future income, whereas the new system only requires an analysis of 2 years of future income.
Obviously, this significant reduction in the analysis of future income requirement has made the Fresh Start Initiative application significantly less difficult to complete, significantly reducing complexity, time, and annoyance of pursuing the forgiveness benefit.
But that’s not all, because the new regulations make several other changes to the Fresh Start Initiative that are worth looking into, including:
- The old regulations forced you to suspend making student loan payments while you were delaying payments to the IRS, but under the new system, you’re able to make minimum payments for any post-high school education loans guaranteed by the Federal Government, without penalties
- The old regulations required taxpayers to pay overdue taxes in full, but now under the relaxed regulations it’s possible to qualify for monthly installment payment plans, as long as you can prove to the IRS that you’re not able to afford the full payment amount
- The old regulations didn’t allow much leeway with the Allowable Living Expense calculations process, but the new relaxed regulations let taxpayers include monthly credit card payments, financial transactions fees and a variety of other charges that’ll help them increase their anticipated expenses, and make it more likely to receive a tax forgiveness credit
But the Fresh Start Initiative isn’t the only path to Federal tax forgiveness benefits, as there are plenty of other avenues to receive financial relief.
Keep reading for details on other possible programs that could help reduce your IRS tax liabilities.
2. The Offer in Compromise Plan
The most popular form of tax forgiveness program hinges on the IRS’s Offer in Compromise system, which allows you to pay a percentage of the outstanding tax debt owed, depending on your financial situation.
The way that the Offer in Compromise system works is that you essentially tell the IRS that you aren’t able to pay off the total amount of money they want, but you instead offer to pay a percentage of that total amount, based on your financial limitations.
Some people may think that this sounds like another scam, but it’s a real program, offering real financial assistance to real Americans just like yourself.
If you can get the IRS to agree to your Offer in Compromise, then you’ll be rewarded by paying back only a portion of whatever they initially told you that you owed, and you’ll be able to pay it back either with a single, large, lump sum payment, or via a payment plan that lets you chop the repayments up into a series of smaller, incremental payments.
Why would the IRS agree to write-off some of your back tax debt? Because it ensures that they’ll collect SOMETHING that you owe them, instead of NOTHING.
The Offer in Compromise system helps the IRS because it lets them take a portion of debt that they may have never been able to get, especially since someone who owes way more than they can possibly pay could simply decide to file for Bankruptcy, and avoid paying the IRS ANYTHING (with court approval).
3. Bankruptcy Discharges
Speaking of which, let’s talk about the Bankruptcy option…
Just like you’re able to file for Bankruptcy and have Mortgage Debt, Credit Card Debt, Medical Debt, or Student Loan Debt Discharged, anyone with an extreme amount of tax debt may pursue the same opportunity.
Both Chapter 7 and Chapter 13 Bankruptcies allow Americans to discharge their income tax debts, but there are specific requirements that determine who is eligible to receive a tax debt discharge via bankruptcy, so don’t think that simply choosing to file means getting the forgiveness benefit.
Generally, the Chapter 7 bankruptcy gives you better odds at beating all of your IRS debt, since it allows for a complete and total discharge of all debts owes, but the Chapter 13 bankruptcy is a little easier to qualify for, even though it only allows you to discharge some of your debt, and forces you to set up a payment plan for the remaining amount that the IRS refuses to give up on.
I’m going to create a specific page on my site to walk you through the details of the Bankruptcy process, but for now, if you want more details about whether or not it may work for you, head to Google and search a phrase like “Can I discharge my IRS tax debt by filing for Bankruptcy?”.
4. The Partial Payment Installment Agreement Plan
The IRS installment agreement plan is similar to the outcome of an Offer in Compromise approval, in that it allows you to stretch out your IRS back tax payments and make smaller, incremental payments, instead of having to pay everything all at once.
Installment agreements are negotiated directly with the IRS, either by yourself (the taxpayer) or via a 3rd party company operating on your behalf (debt resolution experts, etc.).
There’s no guarantee that you’ll get approved for an installment agreement plan, but if you’re having significant financial problems with raising the money to pay back your IRS tax debt, then it’s definitely worth looking into.
Via the Installment Agreement Plan, some people have managed to significantly write down their debt, while others haven’t managed to reduce their total debt by much, but have been able to stretch the payments out over such a long period of time that it takes a lot of the bite out of the IRS’s collection activities.
Just think about it – if you had the option to carve up your IRS tax payments into a series of incremental, monthly payments, and stretch those payments out over several years… wouldn’t that make it much easier to pay off?
As a hypothetical scenario, consider that you owe the IRS $100,000. If you had to pay it all back at once, most Americans would be despondent, and likely financial ruined, but if you were able to carve that payment up into a series of much smaller monthly payments stretched out over a period of many years, you may be able to actually afford to pay it all off.
5. Not Currently Collectible Debt
The IRS Currently Not Collectible program is not necessarily a forgiveness benefit, but more of a delay tactic.
If you can get the IRS to approve your debt as Not Currently Collectible, then they’ll put your back tax repayment requirement on hold, for some set period of time (typically, about a year).
If you’ve had problems paying back student loan debt, and used a Student Loan Deferment or Forbearance Program, then you’ll be familiar with how this process works.
Even though you owe the IRS a ton of money, the CNC debt will be set aside, giving you time to raise funds, get on a better financial footing, and prepare yourself to pay back your outstanding Federal tax debt at a later point in time.
This same program can be used to stop some of the IRS’s worst collection activities too, as it may allow you to prevent them from enforcing an IRS Levy, Lien, Seizure, or Denial or Termination of an Installment Agreement.
To get approval for having your debt officially labelled as Currently Not Collectible, you’ll need to negotiate hard with the IRS, prove how much money you make, how much you’re spending, how much you owe, and why the IRS would destroy your life by forcing you to repay your back taxes now.
6. Release of IRS Wage Garnishments
Anyone who has owed the IRS a great deal of money over a long period of time has probably become familiar with the concept of IRS Wage Garnishments.
If you’re lucky enough not to know what these are, the way a Wage Garnishment works is that the IRS literally takes money from your paycheck before it hits your bank account.
How does that work? The IRS contacts your employer and serves them with notification that you owe them money, so instead of your employer giving you 100% of whatever they owe you in each paycheck, they give a portion of your wages to the IRS, and you’ll only receive some certain percentage of what you’ve earned.
Fortunately, even if the IRS has already served you with a wage garnishment, and is currently collecting funds from your paychecks, it’s possible to negotiate a better deal with them.
If you can prove that the IRS’s wage garnishment is causing significant financial distress (hurting your ability to provide for basic necessities, like food, water, shelter, medical care, etc.), then you may be able to convince them to drop the Garnishment entirely, reduce it by some set percentage, or at least put a hold on it to give you time to save up some cash and get your finances in order.
7. Preventing IRS Bank Account Levies
Just like the IRS is able to take money from your paycheck, they’re also able to literally extract it from your bank account.
It doesn’t matter if you’ve got a Checking Account or Savings Account, if the IRS can track it down and get in touch with the people who run it, they’re absolutely able to extract whatever funds they’ve determined you owe them.
It’s not easy to stop an IRS tax levy on a bank account, but it’s definitely worth attempting if you’re getting your facing having your funds withdrawn.
The way to prevent the IRS from completing a planned bank levy is similar to how the other tax debt forgiveness programs explained above function; you’ve got to convince them that the withdrawal of your money could end up significantly impacting your quality of life.
8. The Innocent Spouse Relief Program
Anyone who has tax problems because of their spouse may be eligible to pursue an Innocent Spouse Relief tax debt discharge.
If you’re facing this situation, it’s possible to receive tax debt forgiveness if you can prove to the IRS that it was entirely your spouse’s fault, and that they are the person who’s entirely responsible for paying off the back tax debt.
The Innocent Spouse Relief Program is really only eligible in super-specific instances, however, and typically would only be used by people who are either in the middle of divorcing, or who’ve recently divorced, and are facing tax debt problems that they truly weren’t responsible for.
To receive relief under this program, you’ll have to convince the IRS that whatever debt you and your spouse accumulated had nothing to do with your own actions, and essentially convince the IRS that you had no idea what was going on, no ability to prevent it from occurring, or no chance to resolve it before it became a significant problem.
This program is kind of like a whistle-blower program, in that the IRS is willing to wipe out some of your debt for your help in proving that the other person (the guilty spouse), has done something wrong.
9. Statute of Limitations Expiration
Most people aren’t aware that the IRS doesn’t get an unlimited amount of time to collect back taxes, and that may be great news for you!
The IRS only has 10 years to collect taxes, fees, penalties and interest from tax payers, and typically, the 10 year collection period begins on the date your taxes were initially filed.
Whether you owe taxes from a year ago, or five years ago, it may be worth consulting with tax resolution company to find out about strategies for delaying, obstructing and putting off the IRS collections process.
There are definitely ways to prevent the IRS from being able to begin enforcement actions, and if you can delay them long enough (10 years), then you’ll literally have 100% of your back tax debt forgiven.
Where Can I Go For Other Questions?
If you need help with IRS Tax Debt Relief, make sure to look at some of the other pages of my site.
If you’re having trouble with the IRS, then you’ll definitely want to look at my Guides to IRS Tax Penalties, Paying IRS Back Taxes, Qualifying for Tax Debt Forgiveness, Reaching a Tax Debt Settlement, Picking a Tax Resolution Service, Avoiding the IRS Collections Process, and Enrolling in the IRS Fresh Start Program.
One other thing that you’ll definitely want to review is the IRS’s Taxpayer Bill of Rights, which explains your legal rights and protections vs. the IRS and their private debt collectors who are likely already hounding your to pay up.
And if you have any other questions about the IRS, back taxes, or any other related issues, please feel free to post them in the Comments section below and I’ll get you a response as quickly as I can.
Disclaimer: Information obtained from Forget Tax Debt is for educational purposes only. You should consult a licensed financial professional before making any financial decisions. This site receives some compensation through affiliate relationships. This site is not endorsed or affiliated with the U.S. Department of the Treasury, the IRS or any other Government Organization.