Have you faced financial hardship or do you know someone who has? Hardships come in many forms, from unexpected health problems to a lost source of income. Whenever someone faces a sudden hardship, they may be unable to fully pay their taxes.
Despite any financial troubles you might currently have, you need to file your taxes to avoid penalties from the IRS. However, that doesn’t mean the agency isn’t willing to work out a reasonable solution for those facing dire money problems. Find out how the IRS debt forgiveness program works and if it is right for your current situation.
What Is the IRS Debt Forgiveness Program?
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It might surprise you that the IRS would be willing to let any debt go uncollected, but the agency would rather collect some of what taxpayers owe than nothing. As part of the agency’s debt forgiveness program, the IRS Fresh Start Initiative began in 2008. The initiative provides opportunities for taxpayers to avoid bankruptcy, tax levies, wage garnishments, or other undesirable collections.
The Fresh Start Initiative program offers several alternatives. You could make a lump-sum payment before the IRS takes further actions and avoid additional fees and interest. Long-term (120-plus days) and short-term installment plans are available for taxpayers who can afford to pay the full amount due over time.
Unlike lump-sum and installment payments, the Offer in Compromise is a debt forgiveness program for those who can’t pay their full tax liability to the IRS within a reasonable period of time. An Offer in Compromise is a negotiation with the IRS for a percentage of debt forgiveness, rather than a plan for paying the full amount back over time.
How Do You Qualify for The Debt Forgiveness Program?
If you apply for an Offer in Compromise, the IRS will look at your personal circumstances when considering if you qualify, including your ability to pay, income, expenses, and asset equity. Of course, the agency will only approve your application if you have filed all your previous tax returns, you have not missed any required estimated payments, and you aren’t going through personal bankruptcy.
The IRS considers the Offer in Compromise to be a last resort, so it will only approve plans where it will receive what it considers to be reasonable within the time it’s allowed to collect overdue taxes.
How to Apply for Debt Forgiveness From the IRS
If you’ve determined that your best solution is to apply for an Offer in Compromise, you will need to fill out all the required paperwork as instructed by the IRS’s official Offer in Compromise Booklet, Form 656-B. This booklet details all that you will need to submit with your application, including Form 433-A, Form 656(s), and all related fees and initial payments.
Along with your submitted offer, you will need to make regular payments according to the plan you have detailed while awaiting word on whether the IRS has approved your offer.
If you are overdue on your taxes and need debt forgiveness, remember the IRS Fresh Start Initiative’s payment and debt forgiveness options to relieve the pressure without ignoring it. Based on your situation, you may be able to pay a percentage of your debt or make smaller payments over time.