If you’re looking for tax debt forgiveness, you may have several options.
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This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.
Does the IRS forgive tax debts because you made a mistake?
The IRS generally doesn’t forgive tax debts just because you made a mistake. There’s no, “sorry, I’ll get it right next time” and not having to pay this time.
When you make a mistake on your taxes, you’ll have to pay the extra tax you should have paid plus penalties and interest.
What many people worry about too much is that they’ll get charged with tax evasion if they made a mistake. The IRS understands mistakes happen.
The penalties are usually lower for a mistake versus tax evasion or completely ignoring the tax rules.
Does the IRS forgive tax penalties?
The IRS does forgive tax penalties in some situations.
One of the most common is first-time penalty relief. If you get charged a penalty and haven’t had other serious tax problems in the last few years, you can often get the penalties waived.
To qualify for a penalty waiver, you’ll generally need to make payment arrangements for any outstanding taxes and make sure you’ve filed all needed tax returns.
You can also get penalty relief for reasonable cause. Reasonable cause includes things like your CPA gave you bad information or you were in the hospital when your taxes were due.
You can learn more about getting IRS penalties forgiven in Penalty Relief.
Does the IRS forgive tax debts you can’t pay?
If you can’t afford to pay in full now or to make monthly payments, you may be able to have your tax debt forgiven.
The IRS will review your finances to determine the most you’re able to pay and that your financial situation isn’t expected to improve enough to be able to pay your debt in full.
If you’re approved, the IRS will accept a partial payment. The remaining amount will be forgiven.
Does the IRS forgive tax debts in bankruptcy?
You may be able to discharge certain tax debts in bankruptcy. This typically includes income taxes that you’ve owed for at least a few years.
What is the IRS Hardship Program?
The IRS Hardship Program is another term for Currently Not Collectible Status. Currently not collectible status means you currently can’t afford to pay in full or make monthly payments.
The IRS Hardship Program is often for temporary situations. For example, if you can’t pay your taxes because you lost your job, you can ask the IRS to say you’re currently not collectible.
The IRS will stop most collection actions if you’re approved. When you get a new job, you can get on a payment plan to pay off the debt.
Some people, such as senior citizens or people on disability, use currently not collectible status as a long-term or permanent solution. The risk here is that penalties and interest keep getting added on.
If your financial situation ever improves, you’ll owe more. An offer in compromise can be a better choice in many situations.
Is IRS debt forgiven after 10 years?
The usual statute of limitations for tax debt is 10 years. That means the IRS has 10 years to collect what you owe.
After 10 years, the IRS may not be able to collect the debt. So you can consider the debt forgiven in that situation.
There are several reasons the IRS may be able to collect a debt after 10 years. These include being unable to find you, tax evasion, tax fraud, or using certain IRS relief options.
Letting the statute of limitations run out can be a possible answer to tax debt, but it’s usually one you should discuss with a tax professional.
Does the IRS negotiate back taxes?
The IRS generally doesn’t negotiate back taxes. Most options are based on your current financial situation.
No tax debt relief company should promise you they can get you a better deal than another. An experienced tax professional can help you understand your options and the application process, but the possible “deal” you can get is generally a fixed amount based on your income and assets.
The main exception is if you’re involved in a complicated tax law dispute. If you have an issue that could go to tax court and the IRS thinks they might lose, they might negotiate on the grounds there’s doubt as to your tax liability.
You can learn more about what tax relief companies can and can’t do in this FTC guide.
Can you get state tax debts forgiven?
State tax debts are separate from IRS tax debt. Each state has its own tax laws and hardship options.
Most state tax debt options are similar to the IRS, but the requirements to qualify could vary.