Written by: Chad Zollinger | Best Company Editorial Team
Last Updated: April 24th, 2020
IRS Debt Forgiveness
IRS debt forgiveness is the IRS's way of helping those who cannot afford to pay their back taxes in full.
The IRS wants the money you owe, but it will not take your money if doing so will leave you destitute. Generally, the greater the financial duress, the more likely you will be able to get IRS debt forgiveness.
One can apply for an Offer in Compromise (OIC), an installment agreement, innocent spouse relief, and many more options designed for those needing help from tax debt.
You can also appeal a lien, bank levy, or wage garnishment if you have the proof to do it. There are licensed tax professionals whose job it is to walk you through your fight with the IRS.
Preface - The Taxpayer Bill of Rights
Before you get started, you need to know what rights you have as a taxpayer in debt. By law, there are some things that the IRS cannot do to you.
Violation of these rights may entitle you to an elimination of debt or other types of compensation.
Included in these rights is the right to be informed, the right to appeal an IRS decision, and the right to challenge the IRS’s position and be heard.
Chapter 1 - Is My Tax Debt Relief Company Legitimate?
A Tax Law Attorney should top your list of must-haves when seeking to combat the IRS's penalties.
Every tax relief company should employ enrolled agents, tax attorneys, and certified public accountants.
Certified public accountants (CPAs) are professionals who are required to pass a state CPA exam. This exam has a pass rate of less than 50 percent.
Enrolled agents are considered by the National Association of Enrolled Agents as “America’s tax experts.” They advise, represent, and prepare tax returns for several entities ranging from individuals to large corporations.
Tax attorneys have attended and completed law school and have passed the national Bar Exam. Part of every law student’s instruction includes understanding tax law, but tax attorneys choose to make it their specialty.
Chapter 2 - [Infographic] 5 Common Types of Tax Debt
You are more likely to find solutions to these types of tax debt simply because they are more common.
The IRS is much more likely to forgive you for tax debt when you have a skilled CPA or enrolled agent on your side. And CPAs, enrolled agents, and tax attorneys will have plenty of experience in handling these common types of tax debt issues:
- Wage Garnishment
- Tax Audit
- Tax Lien
- Bank Levy
- Asset Seizure
Chapter 3 - What Is an Offer in Compromise?
An Offer in Compromise is basically legal debt settlement for taxpayers — only those who cannot pay off tax debt by any other means will qualify for an OIC.
In other words, an OIC is the most money that the IRS can receive from you within a reasonable period of time.
If you can't resolve your IRS tax debt, you can either ignore the debt completely (not recommended), submit an appeal to the IRS, arrange a payment plan with the IRS, or pursue penalty abatement by hiring a top tax relief company.
When you ignore tax debt, you pick up penalties and even more tax debt. Eventually, the IRS could seek legal action. You could end up from 1-5 years for fraud and other tax crimes (including tax evasion) and pay over $250,000 in fines.
Chapter 5 - What You Need to Know About Federal Tax Liens
If you do not pay your federal taxes, the government will often impose a tax lien. A tax lien is the government's legal claim to your property, both current and future holdings.
It does not indicate an immediate seizure of assets, rather it provides assurance that the IRS will be paid.
If you sell a property that has a federal tax lien applied to it, the government will receive a portion of the sale to cover the IRS debt you owe.
Basically, a tax lien is the IRS’s way of “calling dibs” on any money you earn from assets.
Chapter 6 - Beware the IRS Bank Levy
An IRS bank levy is another way for the IRS to stake its claim on your money. With a bank levy, the IRS seizes your money to offset an unpaid liability.
Your bank will be notified to suspend funds in your banking or checking account, typically for a period of 21 days.
During this time, you have the opportunity to satisfy your debt or make arrangements with the IRS to do so with a formal resolution.
If you have not reached an agreement to the satisfaction of the IRS within this timeframe, your funds will be taken and applied to your debt.
Chapter 7 - How to Beat a Wage Garnishment
With a wage garnishment, the IRS takes a portion of your paycheck before it even gets to your bank account.
Your place of employment is notified when you have a wage garnishment against your name, so you have the added embarrassment of your employers knowing about your financial struggles.
Chapter 8 - Innocent Spouse Relief: Do You Qualify?
Through this option, you will not be held responsible for inaccuracies on your tax return and the attached consequences (penalties, owed taxes, or interest).
The consequences will be solely attributed to your spouse (or former spouse).
You can qualify if you meet the three requirements for innocent spouse relief:
- Your spouse is solely responsible for the error. Your spouse either omitted income or incorrectly reported a tax deficiency, other deductions, credits, etc.
- You did not know about the error. When you signed the tax return, you did not know about the error and had no reason to know about it.
- It would be unfair to hold you responsible for the error.
An Installment Agreement is a repayment agreement to satisfy your tax debt over months or years.
You may think of this like a credit card payment, which enables you to pay a minimum amount rather than covering the entire balance all at once.
The terms of the IA are largely based on how much is due, your tax history, and your financial ability.
Typically, if you owe $50,000 or less, qualifying for an Installment Agreement isn't too difficult.
While it's always a good idea to pay as much as you can upfront (more on this in a moment), an IA can allow you to incorporate your tax debt into your monthly rotation of bills.
Chapter 10 - The Three Worst Ways to Handle Tax Debt
The number one cause of tax debt is ignoring it. Procrastination is the enemy when considering how to tackle your tax debt.
Other mistakes include throwing away important tax information and not knowing the applicable tax laws that apply to your current situation. You can either study for yourself or hire a tax debt professional to walk you through the steps.
Chapter 11 - IRS Problems? Tax Professionals Reveal Top Tips
To avoid tax debt now and in the future, you should never wait to pay your debts. Some of the top tips from tax experts for dealing with IRS problems are to act immediately, gather evidence, educate yourself, and seek representation.
Chapter 12 - When Does Your Tax Debt Expire?
The IRS has so many resources to track you down that avoiding your tax debt is just plain risky. It's highly unlikely that your tax debt will reach the ten-year mark without you enduring a bank levy, tax lien, or property seizure.
When the IRS assesses a tax debt, it will send you a notice informing you how much is owed, for what year(s), and when you need to pay.
What it won't necessarily advertise is that it has only ten years from the date of assessment to collect the full balance.
If your tax debt was assessed on August 1st, 2014, it will expire on August 1st, 2024. In certain instances, this collection time can be frozen.
Chapter 13 - Don’t Delay in Handling Your Tax Debt
The first thing you need to do is verify that the Notice of Assessment you’ve received from the IRS is accurate. After you’ve discovered that the notice is correct, you need to decide how to pay.
If you do not currently have the money, the IRS has options for you. An Offer in Compromise, the IRS fresh start program, and installment agreements are just some of those options.
Chapter 14 - 35 Tips to Prepare for the Next Tax Season
You’ve either paid off your tax debt or are on the way to paying off your tax debt. Now it’s time to learn how to stay on the IRS’s good side for the rest of your life.
Much of the preparation for tax season comes from being organized and tracking expenses such as charitable donations.
But, there are many different ways you can prepare. Make sure you study each of the 35 tax tips to prepare for the next tax season.
Chapter 15 - The Most Useful Tax Tools of 2018
Besides a calculator, what do you use to complete your taxes? Check out this list of the most useful tax tools available for taxpayers in 2018.