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At Solvable, we care about your financial well-being and are here to help. Our research, articles and ratings, and assessments are based strict editorial integrity. Our company gets compensated by partners who appear on our website. Here is how we get compensated.
At Solvable, we care about your financial well-being and are here to help. Our research, articles and ratings, and assessments are based strict editorial integrity. Our company gets compensated by partners who appear on our website. Here is
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Tax Forgiveness: How Can I Get My IRS Debt Forgiven?
What is the meaning of tax forgiveness? Can I get my back taxes forgiven? How do I qualify for tax forgiveness? These are some of the common questions taxpayers ask us looking to resolve their back taxes.
Here we will answer all of these questions and more so that you can determine if you can get your IRS debt forgiven and what steps you can take.
What is Tax Forgiveness?
Under certain circumstances, the IRS reduces a part or entirety of back taxes that you owe. There are three conditions in which someone can achieve tax forgiveness. These are:
You can get a reduction in back taxes if you cannot afford to pay your entire back taxes amount.
The statute of limitations for collection, which is usually 10 years, expires.
The IRS puts your case under a ‘Currently Not Collectible’ status if you can pay nothing of what you owe because of your adverse financial condition.
As you can see, your financial situation is of paramount importance. If the IRS discovers that paying the tax debt will force you into a financial crisis where you cannot pay for allowable living expenses, they cannot ask you to pay.
When considering taxpayers for tax forgiveness, the IRS looks at the paying capacity of the taxpayer. To determine whether you can pay your back taxes and how much of it you can pay, the IRS will ask you for your financial and tax specifics. They will look at your bank accounts, wages, other income sources, house, cars, and more.
If you cannot pay your back taxes in full, you can apply for the IRS tax forgiveness program called an ‘Offer in Compromise.’ This tax debt resolution plan has various qualifying factors.
For instance, before you apply for an Offer in Compromise, you need to have filed all your tax returns that you are required to file. If you apply for an Offer in Compromise without filing all your returns, the IRS will reject your application and send back the setup fee but will keep the initial payment you sent and apply it to your back tax balance.
The IRS offers a variety of tax debt resolution plans. An Offer in Compromise is a tax forgiveness plan that allows taxpayers in difficult financial circumstances to resolve their back taxes by paying less than what they owe. How much of the debt the IRS forgives depends upon the paying capacity of the taxpayer.
Along with an Offer in Compromise, taxpayers under financial constraints can also consider a Currently Not Collectible status. This is the status the IRS gives to tax debt cases where they cannot recover any amount in back taxes. When the IRS puts a case under Currently Not Collectible status, the agency waits for the taxpayer’s financial situation to recover so that they can recuperate the back taxes in full or in part.
How Much Does the IRS Charge in Penalties and Interest on Back Taxes?
It sometimes happens that taxpayers do not know that the IRS charges penalties and interest on back taxes. This becomes a big problem because, after months and years of non-payment, the total back taxes amount grows substantially solely due to penalties and interest.
The IRS begins charging a failure-to-pay penalty at 0.5% of the tax amount owed after the expiry of the due date for payment. This penalty can reach up to 25%.
Along with the failure-to-pay penalty, the IRS also charges a failure-to-file penalty if you did not file your return that you were required to file. The failure-to-pay penalty charged is 5% of the unpaid taxes. This penalty can reach up to 25%.
If you did not file your return and did not pay the taxes owed, then the combined penalty is 5%.
Though the failure-to-file penalty will max out after five months of non-filing and non-payment, the failure-to-pay penalty keeps on accruing until you pay your back taxes in full.
Along with penalties, the IRS also charges interest on back taxes. Interest is charged at the federal short-term rate plus 3%. It is charged on the total debt amount and compounds daily.
Even if you owed a small amount in tax debt, this amount could balloon into a substantial sum if it remains unresolved for long due to penalties and interest.
What Does the IRS Do to Collect Back Taxes?
In tax debt cases, the IRS can begin collection actions at any time. It starts with mailed notices and can lead to the IRS seizing the taxpayer’s property, such as house, car, boat, etc. to satisfy back taxes. They can also take away all or a part of wages or freeze bank account(s) to recover back taxes.
If you received an IRS notice informing you that you owe back taxes, it is best to resolve it even if you cannot pay the taxes owed. The sending of the notice means that your owing of taxes has their attention. Suppose no response is received, and no satisfactory efforts are made to resolve the tax debt. In that case, the IRS can progress to aggressive collection actions such as a lien and a levy, which can upset your financial stability and adversely affect your credit report.
Until How Long Can the IRS Collect Back Taxes?
The IRS usually has a 10-year period to recover back taxes. If they are unable to recover back taxes till 10 years, they normally close the case. In rare cases, however, they may go beyond 10 years to collect back taxes.
When you’re looking to get your back taxes forgiven, it is important to get help from a tax resolution service or a tax professional because the IRS wants to recover the most they can in back taxes.
Hiring a professional service can get you the most tax debt reduction possible, save you from paying more in penalties and interest, and make the resolution process quick and smooth. Since tax forgiveness is an unfamiliar path for most taxpayers, it is best to let an expert guide you.
Solvable is a for-profit company that helps customers resolve their tax problems, but a free service for consumers. Partners cannot pay us to guarantee favorable editorial reviews or ratings. We do not publish favorable (or unfavorable) editorial reviews or assessments at the direction of an advertiser or partner. We always work to put consumers first and do our best to provide value in meaningful ways, but our reviews are subjective.
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Solvable is compensated by some of the companies seen on our website. Most often, Solvable receives fees when one of our readers clicks, fills out a form, applies for, or receives a financial product from one of our partners. We also earn fees for capturing consumer stories and writing about them, displaying advertising, having our partners sponsor certain parts of the site, and writing content that may be relevant to our partner and their audience. This compensation may impact where products appear on this site, including article pages, comparison listings, the order in which they appear or if they will even appear on a given page, and our matching recommendations. Solvable has not written about, reviewed, or rated all financial products available to consumers.
In addition, we may be compensated in the following ways:
Referrals to consumers who use the online form or locator line that may provide expert answers to questions;
Marketing tax resolution, tax preparation, tax audit help and general tax assistance.
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We are not attorneys and we don’t provide legal advice. As always, we encourage you to do your homework and check out individuals and companies before you hire them. If you are already working with an attorney, we urge you to ask them your questions. After all, they will be familiar with your situation and the laws in your state.
We hope that you find Solvable helpful in your efforts to get a fresh start.
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Loans in default generally cannot be consolidated until completion of a repayment trial plan so tell your lender if you are in default and determine relevant options (be wary of those asking for upfront fees as well)
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