Everyone has to pay taxes. But sometimes the money you owe the IRS is greater than the amount of money you make. If this describes your current situation, the IRS Tax Debt Forgiveness Program might be your best option. Here’s what you need to know about this program before you apply.
This isn’t a one-size-fits-all program. In fact, the term, “IRS Tax Debt Forgiveness Program” was largely coined by the media. Its technical name is “Offer in Compromise (OIC),” and it’s entirely determined by the amount owed.
The first step in resolving tax debt is to understand the size of the debt. Some people haven’t paid taxes in years or are unsure of the total amount.”
An OIC is a settlement or agreement between you and the IRS that allows you to pay less than your full tax bill.
John P. Jones, CPA, offers some excellent advice when determining how you might qualify for tax debt relief. He says, “The first step in resolving tax debt is to understand the size of the debt.” He adds that some people haven’t paid taxes in years or are unsure of the total amount.
After an amount has been established, the program solution that works best for you can then be determined.
If you owe less than $10,000
If you owe less than $10,000, you can file online at www.irs.gov.
Jones details the qualifying factors for taxpayers that owe less than $10,000 as follows:
- During the past five tax years, you (and your spouse if filing a joint return) have filed all income tax returns on time, paid any income tax due, and have not entered into an installment agreement for payment of income tax.
- You agree to pay the full amount you owe within three years, and to comply with the tax laws while the agreement is in effect.
- You are financially unable to pay the liability in full by the due date.
If you owe more than $10,000 (but less than $50,000)
Jones says, if you owe more than $10,000, you might qualify for a “Streamlined Installment Agreement.”
“Streamlined agreements can be obtained online or by filing Form 9465. In this instance, you will promise to pay the tax owed in 72 months (six years),” Jones states.
What if you owe a larger amount of debt?
For taxpayers that owe more than $50,000 or have declared bankruptcy, Jones says, “You must contact the IRS to speak with the insolvency unit directly.”
In other words, you can’t file online if you owe a massive amount or have declared bankruptcy.
Benefits of the Tax Debt Forgiveness Program
As with anything, there are positives and negatives to this program. Here are some of the positives:
Government can’t garnish your wages
If you continue to ignore your tax debt, the government can garnish your wages (something to keep in mind if you are purposely dodging the IRS!). But if you qualify for the IRS Tax Debt Forgiveness Program, the government can no longer garnish your wages.
Pay less than you owe
A huge benefit to this program is that you could end up paying a lot less than you owe. If you agree to IRS settlement terms, you’ll still have to pay back some taxes, but it could be a much smaller amount. This could help take some pressure off that heavy tax burden and enable you to pay off your debt more quickly.
Get liens removed
Another unknown advantage to this program is that “any liens would also be removed from county records,” notes certified IRS accountant representative Deltrease Hart-Anderson. This is an important benefit since the government can exercise the right to possess your property (a lien) until you pay off the debt you owe.
Drawbacks of the Tax Debt Forgiveness Program
There are clearly several desirable benefits to the Tax Debt Forgiveness program. However, as with most things, this program isn’t perfect. There are some drawbacks you need to be aware of as well.
The IRS now can delve into all of your past and present financial matters. They can review information like current and past bank accounts, credit cards, property, and business ownership.”
Hart-Anderson notes (somewhat humorously) that the biggest drawback to the IRS forgiveness program is that “most people think they qualify when they don’t.”
The processing time can also be painfully slow. It can take up to one year for your paperwork to be approved.
And if you do not meet agreement terms, or pay on time for the next five years, you will owe the original tax debt amount — plus interest and penalties.
Hart-Anderson also warns, “The IRS now can delve into all of your past and present financial matters. They can review information like current and past bank accounts, credit cards, property, and business ownership.” In other words, do NOT lie or exaggerate if you do decide to file for a tax relief program – the IRS can see everything.
If you owe a lot of money to the IRS, it can help to have a tax relief company on your side. The best tax relief companies have tax lawyers and enrolled agents on staff, provide a money-back guarantee and charge competitive rates. Check out which tax relief company is the best fit for you.
FAQ on IRS Tax Debt Relief Program
What is the IRS Fresh Start Program?
The IRS Fresh Start Program is a program that is designed to allow taxpayers to pay off substantial tax debts affordably over the course of six years. Each month, taxpayers make payments that are based on their current income and the value of their liquid assets.
Do I qualify for the IRS Fresh Start Program?
The IRS Fresh Start initiative expanded several programs to help taxpayers struggling with unpaid tax debt. The Fresh Start program increased the threshold to qualify for a streamlined installment agreement from $25,000 to $50,000, if the balance can be paid in full within six years (previously five years).
Does the IRS forgive tax debt after 10 years?
In general, the Internal Revenue Service (IRS) has 10 years to collect unpaid tax debt. After that, the debt is wiped clean from its books and the IRS writes it off. This is called the 10 Year Statute of Limitations. It is not in the financial interest of the IRS to make this statute widely known.
Can I get the IRS to waive penalties and interest?
The IRS does not provide relief from interest charged in cases of reasonable cause or first-time penalty relief.
Does the IRS waive underpayment penalty?
The IRS is generally waiving the penalty for any taxpayer who paid at least 85 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. The usual percentage threshold is 90 percent to avoid a penalty.
How to begin the process
That’s a lot of information to swallow, and you don’t want to make any mistakes when filing for tax relief programs through the IRS.
So if you want to be 100% sure that you do this the right way, your best bet is to work with an experienced tax attorney who knows all the ins and outs. He or she will help you navigate each step of the process and ensure that you file all the correct paperwork.
Start by clicking here to compare options and get a free consultation with a leading tax relief attorney.
Harriet writes mostly about technology and finance. She has been featured in Forbes, Business Insider, Success Magazine, in addition to SuperMoney.