An Overview of IRS Tax Debt Forgiveness Programs


Did you know that the IRS has estimated that approximately one million Americans owe more than $ 83 billion in taxes, penalties and unpaid interest? Now, the next question: If so many people owe money in tax arrears, how is the IRS ever going to get it back from all these taxpayers? The truth is that the IRS cannot collect all of these tax arrears – and it is for this exact reason that they created the debt forgiveness programs. This article will explain what these programs are and the three main factors that compel the IRS to forgive some or all of your existing tax debts.

What can the IRS do to forgive your tax debts?

Status of limitations on IRS collection actions: Did you know that the IRS usually only has ten years to collect tax debts, after which they can no longer legally collect them from you? This method may seem excellent to long-suffering taxpayers. Basically, if the IRS can only recover X dollars in back taxes during this 10 year period, what if you offer X + 1 dollars? What is the quality of this agreement for the IRS? And how is it for you?

Chapter 7 Bankruptcy: Most of the time, Chapter 7 bankruptcy can completely wipe out (pay off) the personal tax debts you owe. This means that the IRS will get nothing for what could be several hundred thousand dollars in tax arrears. A bankruptcy can provide instant IRS debt relief.

Reasonable collection potential: If you have no money to pay, would any collection action benefit the IRS? You might owe hundreds or even thousands of dollars to the IRS, but then what? How about owing millions of dollars? There is no big difference if you have no assets or money to pay. This is what the IRS calls "reasonable collection potential" (RCP) – an estimate of your value. If your ROE is $ 0 and you have no assets to run or you are completely ruined, the IRS will not be able to take anything from you.

IRS tax forgiveness

To sum up, choosing the right debt forgiveness program depends on the three factors mentioned above: 1) The time that the IRS has to collect; 2) how much money the IRS can collect; and 3) whether you can use bankruptcy to your advantage. Now, let's discuss the different IRS tax debt remission programs available.

Unrecoverable IRS status

If you are unemployed or on low income and have little or no assets or equity to pay off the tax debt, you can benefit from the status "Currently not collectable". CNC means that the IRS will stop all recovery actions and you will not have to make any refunds until your situation improves, with the exception of any situation of underpayment in Classes. This status turns the clock, which means that if you stay in the CNC until the expiration of the limitation period, your tax arrears will no longer be due to the IRS.

IRS Partial Payment Agreements

If your ROE is very high for non-collectable status, then you are eligible for the next best solution – a partial payment agreement. Here, instead of nothing, you pay fractional monthly amounts to the IRS. Now, these fractional amounts will not help repay your entire tax debt before the collection status expires. And, like CNC, if the limitation period expires, your obligation to pay the tax debt is also abolished.

Doubt as to the offer of recovery in compromise

There are three types of compromise offers, but doubt about collection offers is the most commonly used type for tax debt forgiveness. The other two types of OICs are almost never used. This is based on your ability to pay the IRS, offset by the ability of the IRS to collect. This is the main reason for requesting several compromise offers, according to which the negotiated amount can be paid in monthly installments.

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