Tax debt can often be a significant burden, causing people and several businesses to undergo both emotional and financial stress. Luckily, the Internal Revenue Service (IRS) offers quite a lot of debt forgiveness programs which enable eligible taxpayers to settle their tax debt in an amount less than the full amount that is owed.

While it is true that the IRS debt forgiveness can often be time-consuming and spun out, it can be a viable option for those experiencing a financial crunch and are further unable to pay their tax debt. Unpaid tax bills often cause severe penalties and interest charges, which can result in the IRS taking action including placing liens on your property, garnishing wages, or seizing funds.

In case you find yourself in hot water with the IRS there still might be a slight glimmer of hope. Entering the IRS tax debt relief, an initiative which directly comes under it is the Offer in Compromise section of the US tax code. For cases like these, you can seek assistance from an IRS tax consultant who knows the nooks and crannies of how the system actually works.

So, What is IRS Debt Forgiveness Program?

Let’s face it, nobody is willing to be on the wrong side of the IRS. With the IRS the penalties and interest that arrive with unpaid taxes can typically be very brutal, not to mention the future potential for liens on your property or the chances of garnished wages. However, the fear might lower because the IRS tax forgiveness program offers a way out for those who are eligible.

While the IRS tax debt relief can be a lifeline for those struggling to pay their debt in full, the application process can still be a very sophisticated and protracted method to go through.

The IRS tax forgiveness program comes under the Offer in Compromise part. It does not guarantee acceptance policy and is totally up to the IRS who is going to determine whether the taxpayer qualifies or not. This program contains quite a lot of stipulations and you should definitely be prepared to show them that you are a fit for the OIC program, failing which you won’t be accepted.

 

Thus, it is absolutely necessary to be prepared and thoroughly understand the requirements prior to applying. Preparation can further stimulate the chances of acceptance.

In case you are eligible for the program, the IRS may accept a lump sum payment or an installment plan for an amount less than the full.

How to Qualify for IRS Debt Forgiveness?

Qualifying for the IRS tax relief program can often be a complex procedure. It can be both lengthy and sophisticated. The Internal Revenue Service can also request additional information or documentation in order to offer support for your application. It is one of the many reasons why consulting a tax professional for further resistance to the application process can be a good idea.

So, how do you qualify for IRS Debt Forgiveness?

  • You should have filed every required tax return.
  • You should have made all estimated tax payments.
  • It is necessary that you are not able to pay the full amount of your tax debt.
  • You should have also considered other payment options, including installment agreements.
  • You should be able to meet other eligibility requirements on the basis of your income, expenses, assets, and entire financial status.

Types of IRS Debt Forgiveness

There are various IRS net forgiveness programs directly available to various qualified taxpayers. It is, however, important to note that in order to qualify for the same, you have to be eligible. Some of the common types include,

  • Offer in Compromise: This program enables taxpayers to settle their tax debt within an amount that is less than full.
  • Penalty Abatement: It allows eligible individuals to have only distinct penalties waived or reduced. In order to
  • Innocent Spouse Relief: This program is made for taxpayers who filed joint tax returns with their now or former spouse, and are currently undergoing tax debt due to the actions their spouse caused.in order to be eligible, you should meet some eligibility requirements and show that you were not aware of the errors on your joint tax return.
  • Currently Not Collectible (CNC): CNC enables eligible taxpayers to suspend IRS collection activities on a temporary basis due to their current financial status. In order to qualify for the same, you should be able to demonstrate that you are unable to pay your tax debt due to financial hardship. However, it is important to remember that “Currently not Collectible” does not necessarily mean that the tax debt goes away. This status typically is temporary and is applied for a brief time limit.

How Does Tax Debt Forgiveness Work?

Tax debt forgiveness, which is also sometimes known by the name debt settlement or debt relief, allows people to settle tax debts for an amount less than the one owed.

There are two methods by which tax debt forgiveness works, Offer in Compromise (OIC) or Bankruptcy Filing.

An OIC enables taxpayers to settle taxes for less than the full amount. In order to qualify for the same, you’ve to demonstrate being unable to pay the amount due to a financial crunch. You must submit an offer which is reasonable enough, reflecting the true value of all your income and assets. Following the same, the IRS will either consider or reject the offer on the basis of the ability to pay, the amount owed by the taxpayer, alongside many other factors.

Bankruptcy is just another option available for tax debt forgiveness. In case you file for the same and meet specific criteria, including passing the “means test”, you might have some or all your tax debt discharged. But, it is equally essential to keep in mind that not all tax debts are dischargeable in bankruptcy.

IRS Tax Debt Relief is really not a simple procedure, and not all taxpayers will be eligible for it. Both options might create significant tax consequences, such as potential tax liabilities for the forgiven debt. It’s important at times to consult a tax professional to decide the finest course of action for certain circumstances involved with the IRS tax debt relief.

How to Apply for IRS Debt Forgiveness?

In order to apply for the IRS debt forgiveness program via the Offer in Compromise, you must follow the steps below:

 

  1. Eligibility: Before applying, you need to determine whether or not you qualify for the program. The IRS offers a pre-qualifier tool on their website which helps determine whether you meet all the requirements.
  2. Gather every piece of Financial Information: You are required to offer detailed financial information regarding your income, assets and expenses as part of the application. It includes anything between pay stubs, bank statements, tax returns and more.
  3. Fill necessary forms: Complete the form 656, Offer in Compromise, alongside other supporting forms as part of the application. These can be filled from IRS website as well.
  4. Submit Application: Once done, submit the application. You are required to pay a non-refundable application fee of $205, unless and until you demonstrate to meet particular low-income guidelines.

In case you need to know more about how to apply for IRS debt forgiveness, the best thing to do is avail an IRS tax audit help and weigh your situation.

Conclusion

Dealing with debt can be stressful and unnerving, and the very consequences of unpaid bills can often be triggering. Luckily, for those undergoing this stress, IRS offers a wide range of debt forgiveness programs. Being part of a journey as unsettling as paying tax debt can be very difficul for many.

However, it is important to note that not paying it will only accrue the amount over the course of time. The IRS tax forgiveness program enables taxpayers to settle tax debts for an amount less than the original. But, it is essential to remember that the application process might be quite lengthy and complex. It is best to weigh the possibility of your application being denied as it is a likely situation if your side of th story isn’t as strong.

Frankly, the IRS tax forgiveness program can be a lifesaver for those struggling with an insurmountable tax debt. While it is true that the application procedure can often be lengthy and tough, it is essential to explore your options and avail IRS tax audit help to determine the finest course of action.

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Author

Mr. Michael D. Sullivan

Michael D. Sullivan is the founder of MD Sullivan Tax Group. He had a distinguished career with the Internal Revenue Service for 10 years. As a veteran IRS Revenue Officer / Agent, he served as an Offer in Compromise Tax Specialist and Large Dollar Case Specialist.

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