If you have a tax debt with the IRS, you may be eligible for one-time forgiveness and have either your taxes or your penalties forgiven. There are several programs available, and whether you qualify depends on the circumstances surrounding the debt, how much you owe, and your current financial situation.
Most Americans file their tax returns each year in the hopes of receiving a refund. Unfortunately, our complicated tax code means many people are unpleasantly surprised to learn they owe the IRS money.
Plenty of people owe the IRS money eachoff year, and the IRS has programs in place to help with that. These programs may reduce or eliminate taxpayers’ penalties or even reduce the amount of taxes they owe. Keep reading to learn more about IRS one-time forgiveness options offered and how to qualify.
Does the IRS offer one-time forgiveness?
They do! Some of the IRS policies available specifically waive penalties you’ve accrued for failing to file or pay your taxes on time. Others actually allow you to reduce the amount of taxes you owe.
It’s important to note that penalty or tax forgiveness isn’t automatic. Most taxpayers aren’t even eligible to take advantage of it. Each of the different tax debt forgiveness programs has certain criteria you’ll have to meet, so be sure to look closely at your circumstances and the different options available.
What are the different types of IRS one-time forgiveness?
As we’ve mentioned, there are several different ways to go about having your penalties or tax bill waived, either partially or in full. Below you’ll find more information about some of the different opportunities.
First-time penalty abatement
One of the most popular options available for tax penalty relief is the administrative waiver available for first-time penalty abatement. You can be eligible for this type of relief if you’ve previously been in good standing with the IRS, including:
- Filing and paying your taxes on time for the three previous tax years (or you didn’t have to file a tax return for those years)
- Filing all currently required tax returns or filing a valid extension
- Paying or arranging to pay any taxes you owe
How can a first-time penalty abatement help me?
If you qualify for this kind of relief, a first-time penalty abatement can help you to waive a few different types of fees.
- Failure-to-file. This penalty applies when you’ve filed your tax return after the due date and owed money to the IRS.
- Failure-to-pay penalty. Similar to a failure-to-file, this penalty applies when you don’t pay your tax bill by the due date.
- Failure-to-deposit penalty. Most taxpayers don’t see this penalty, as it only applies to business owners. Incurring this means a business owner failed to make employment tax deposits on time, in the right amount, or in the right way.
Abatement for the failure to file and failure to pay penalties are available to both individuals and businesses. However, abatement for the failure to deposit penalty is available only to businesses.
How do I apply for a first-time abatement?
You can request penalty abatement over the phone, online, or in writing. Depending on the amount you owe in penalties, requesting abatement over the phone may be your best choice. It’s possible an IRS representative may agree to the abatement on the spot! If you’re granted the administrative waiver of abatement, it applies both to your IRS penalties and the interest on those penalties.
Another way to have your IRS penalties waived is if you have a reasonable cause to have filed or paid your taxes late. Situations in which the reasonable cause argument might be acceptable include a natural disaster or fire, an inability to obtain records, or a death or serious illness in the family. It’s important to note that having a lack of funds to make your tax payment is not considered a reasonable cause.
If you believe this applies to you, you can alert the IRS of your reasonable cause through a tax penalty waiver letter. We walk you through how to write one here.
A statutory exception is another way to have your tax penalties waived, but only if you’ve received incorrect written advice from the IRS. To qualify for this type of IRS penalty relief, you must be able to show that your penalty was the result of that incorrect advice. When requesting this type of relief, you’ll have to provide three things:
- Your written request for advice
- The incorrect written advice you received from the IRS
- The report of tax adjustments identifying the penalty
Like first-time penalty abatement and reasonable cause, the statutory exception applies only to your penalties, not to the taxes you actually owe.
Offer in compromise
An offer in compromise (OIC) is a way for you to settle your tax debt for less than you owe. While the types of IRS forgiveness we’ve previously discussed only apply to penalties, this one applies to your actual tax bill.
An offer in compromise might be an option for you if you can’t afford to pay your tax bill or if doing so would create financial hardship. When deciding if someone qualifies for an OIC, the IRS considers your ability to pay, your income, your expenses, and your asset equity.
To request an OIC, you’ll have to apply using Form 433-A, where you’ll disclose relevant information about your financial situation, including your income and assets. If the IRS approves your request, you can either pay off your remaining tax bill in a lump sum or periodic payments.
Partial payment installment agreement
Another way to settle your tax obligations for less than you owe is using a partial pay installment agreement (PPIA). When you owe taxes, you’re often able to set up an IRS payment plan agreement to pay off your balance over time. In 2020, the IRS approved over 1.8 million installment agreements and collected over $12.5 billion in back taxes. In the same year, 1.6 million delinquent taxpayers paid off their debt with installment agreements.
By using a partial pay installment agreement, you’re able to pay less than the normal monthly payment. And if there’s a remaining balance at the end of the payment period, the IRS will forgive it.
To be eligible for this type of agreement, you must be able to show financial hardship. Your monthly payments are then determined based on your ability to pay. If your ability to pay changes throughout the course of your payment agreement, your payments may increase. To be approved, you also must owe at least $10,000 and not have any outstanding tax returns.
How do I know what relief programs I qualify for?
If you’re struggling to pay back the IRS, a relief program sounds like a great break from your financial burdens. However, the IRS’s strict qualifications may discourage you from applying. In order to best understand what relief opportunities are available to you, speak with a tax relief company.
To get the best deal possible, we recommend comparing the prices and services of several relief companies. You can start your search with the companies below.
Other types of tax relief
Owing the IRS money can be a financial burden in more ways than one. Not only do you owe a large sum of money to the government, but the IRS can collect what you owe using various methods.
The good news is there are some programs the IRS offers that don’t necessarily reduce the amount you’ll owe in penalties or taxes but still provide some temporary relief.
Currently not collectible
In some cases, both you and the IRS agree that you owe money. However, you don’t qualify for any tax relief programs and can’t afford to pay the debt right now. In that case, the IRS may allow you to go into currently not collectible status.
When a tax debt is designated as currently not collectible, the IRS will pause many of its normal procedures to collect it. It won’t place federal tax liens on your assets, won’t levy your financial accounts, and won’t garnish your wages.
While your tax liability is in non-collectible status, it will continue to accrue interest and penalties. And if your financial status improves, you need to start making payments on your debt or risk IRS action.
In most cases, the IRS prefers that when you owe taxes, you pay them in full right away. If that’s not feasible, you may be allowed to enter a payment plan to pay off your debt over time.
Most taxpayers who qualify for an installment agreement won’t be able to sign up for the partial payments — you’ll usually have to pay back the full amount you owe. Your debt will also accrue interest and penalties until it’s fully paid. However, you’ll have the opportunity to pay back your debt over several years rather than by tax day. Depending on your situation, you may sign up for either a long-term or short-term payment plan.
But remember, the IRS prefers that taxpayers pay their full tax bill upfront. This means they may deny your request for an installation agreement. In that case, you’ll have to pay the full amount you owe.
Is the IRS forgiving back taxes?
In many cases, qualifying for an IRS tax relief opportunity requires that you be up to date on your taxes up until the current tax year. But if you owe back taxes, it is worth exploring whether they are eligible for one of the IRS tax relief programs.
Who qualifies for the IRS Fresh Start Program?
The IRS Fresh Start Program was created in 2011 to help struggling taxpayers ease the financial burden of their tax debt. The program includes several different ways to get either relief from penalties or taxes, including the OIC, penalty abatement, and PPIAs. Since each of these tax relief processes is different, each also has its own criteria for someone to be eligible. Some require that you show financial hardship, while others require that you have a previously clean tax record.
How can I get the IRS to forgive my debt?
Most IRS tax relief options apply specifically to penalties, not the actual taxes you owe. However, you may have some of your tax debt forgiven through either an offer in compromise or a PPIA.
Whether the IRS will forgive any of your tax debt depends on many factors. This includes the circumstance surrounding the debt, the amount you owe, your financial situation, and more. If you think you may meet the criteria for one of the IRS tax relief opportunities, speak with a tax practitioner to learn the best next steps.
- If you owe taxes or penalties, the IRS may forgive them through one of several different tax relief programs.
- One of the most popular tax relief options is the first time penalty abatement policy, where penalties can be waived for taxpayers with an otherwise clean tax record.
- Other forms of tax and penalty forgiveness include reasonable cause, statutory exception, offer in compromise, and partial payment installment agreements.
- You may also qualify for other options, such as currently not collectible status or installment agreements, that allow you to pay your IRS debt off over a longer period.
View Article Sources
- Guaranteed Installment Agreements — IRS
- Penalty Relief Due to First Time Penalty Abatement or Other Administrative Waiver — IRS
- IRS Penalties Explained: How To Get Tax Penalties Waived — SuperMoney
- 5 IRS Tax Relief Programs That Can Help You Pay Off Tax Debt — SuperMoney
- The Best Tax Relief Companies | March 2022 — SuperMoney
- Tax Relief Companies: Reviews & Comparisons — SuperMoney
- Top IRS Red Flags That May Trigger an IRS Tax Audit — SuperMoney
- Ultimate Guide to Unfiled Tax Returns — SuperMoney
Erin Gobler is a Wisconsin-based personal finance writer with experience writing about mortgages, investing, taxes, personal loans, and insurance. Her work has been published in major outlets, such as SuperMoney, Fox Business, and Time.com.