When you owe the Internal Revenue Service (IRS) significant tax debt, it can be very overwhelming. If you don’t have the financial ability to pay your debt in full, there may be options for IRS tax debt forgiveness. It’s important you know what programs are available to you.
Options for Tax Debt Forgiveness
In fiscal year (FY) 2024, there were nearly 1.25 million math errors on individual tax returns. Making errors can lead to penalties, and there were 50.72 million penalties assessed in FY 2024. When your debt increases from penalties and interest, it can be hard to know what you can do about it. If you don’t have the financial ability to pay the debt and meet other qualifications, you could get debt forgiveness through:
Innocent Spouse Relief
When spouses file their taxes jointly, they are both responsible for the amount owed to the IRS. If your spouse made errors by undervaluing assets, underreporting income, or taking improper credits and deductions, and you didn’t know about the errors, you may be able to file for innocent spouse relief. If you are a victim of domestic abuse, you could get this relief even if you had knowledge of the errors.
This type of relief forgives you for the debt that is owed by your spouse. Even if you have divorced your spouse since incurring the debt, you can still be liable for their debt, so it’s crucial to request this form of relief within two years of receiving a notice of the debt. There were 1,405 innocent spouse cases in FY 2024 that the IRS received.
Offer in Compromise
An offer in compromise occurs when you make an offer to the IRS for a lesser amount than you owe. If the offer is accepted, then you pay that amount in a lump sum or in installments. Once the agreed-upon amount is paid in full, then the rest of your IRS tax liability is forgiven.
This is an ideal situation for many taxpayers, but an offer in compromise is very hard to secure. The IRS accepted 7,199 offers in compromise in FY 2024, out of 33,591 offers received.
You have to meet several qualifications to even be allowed to apply for an offer in compromise, including that you:
- Filed all tax returns
- Received a bill for a tax debt that the offer is for
- Made all estimated tax payments
- Made the current and past two quarters’ federal tax deposits, if you are an employer
- Are not in an open bankruptcy proceeding
- Have a valid extension for the current tax year, if you are filing for that year.
There are also additional qualifications to determine if the IRS will accept it. The IRS has to determine that one of the following is true:
- There is a reasonable dispute that you are truly liable for the debt that the IRS says you are liable for.
- There is genuine doubt that the IRS can fully collect the debt, because your assets and income are lower than the liability.
- Accepting the offer is good tax administration by the agency, because expecting full repayment would cause you financial hardship or otherwise be unfair.
Other Options to Give You Tax Debt Relief
If you can’t repay your debt, but you don’t qualify for an offer in compromise or spouse relief, there may be other ways to help pay off your IRS debt. This includes:
- Penalty abatement, which can remove specific penalties and their interest under first-time abatement or reasonable cause abatement
- Currently not collectible status, which pauses collection actions on your debt until your financial situation improves
- An installment agreement, which sets up a payment plan with the IRS, giving you more time to repay your debt
Other Forms of Debt Forgiveness
You may be able to secure IRS debt forgiveness or relief in unique circumstances, such as:
- You were in an area that was declared a disaster area.
- You were deployed in the military.
- You were a victim of identity theft.
FAQs About IRS Tax Debt Forgiveness
How Can I Get My IRS Debt Forgiven?
There are a few ways you can get your IRS debt forgiven or reduced, depending on your situation. Methods like penalty abatement can reduce the overall amount you owe. You could secure innocent spouse relief, which can entirely forgive debt incurred by your spouse in specific cases. An offer in compromise is a popular but hard-to-get type of debt forgiveness that settles the full debt for a lesser sum.
What Is the Three-Year Rule for the IRS?
The three-year rule for the IRS can refer to the time period the IRS has to assess a tax, and it also refers to the time period you, as a taxpayer, have to claim a refund. If the IRS has not assessed a tax you owe by the three-year deadline, it cannot assess it, unless an extension, exception, or suspension applies.
Who Qualifies for the IRS Forgiveness Program?
The IRS forgiveness program most often refers to the program for an offer in compromise. This allows a taxpayer with debt they can’t pay to settle their debt for less. You are eligible to apply for this option if you 1) filed your required tax returns and payments, 2) are not in an open bankruptcy case, and 3) have an extension for the current tax year if you are applying for forgiveness for that year. Employers have other qualifications.
How Much Will the IRS Usually Settle for?
How much the IRS will usually settle for is the amount the agency thinks you can reasonably pay, considering your income and expenses, and the amount it can reasonably expect to recover from you. Debt settlement is generally found through an offer in compromise, and very few taxpayers qualify for and are able to secure an offer in compromise. This is why you should hire a Jacksonville state taxes lawyer, who can help you determine the right amount to offer.
Hire a Tax Debt Settlement Lawyer in Florida
There are 18 IRS Taxpayer Assistance Center Offices located in Florida. When you work with TaxSmith, LLC, we can represent you in negotiations and discussions at these offices or help you prepare for meetings. Our team has years of tax code experience. Reach out to our firm today.
