Does the IRS ever forgive back taxes?
Tax debt can be one of the most stressful financial burdens to carry, as the Internal Revenue Service (IRS) has a reputation for being a strict debt collector, pursuing tax debts with remarkable persistence while armed with significant legal powers to collect what they're owed. That's why, for many taxpayers, the idea of owing back taxes to the IRS conjures up images of penalties, interest charges and even legal action.
Still, millions of Americans are facing issues with delinquent tax debt and the longer that tax debt goes unresolved, the larger the burden can grow due to penalties and interest. Given the severity of the situation, those who are trying to deal with their back taxes may be wondering whether it's possible to have some or all of their tax debt forgiven by the IRS.
So does the IRS ever forgive the back taxes you owe, or does delinquent tax debt live on in perpetuity? The answer to this question could mean the difference between financial recovery and continual hardship. Below, we'll detail what you should know if you're struggling under the weight of your unpaid tax obligations.
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Does the IRS ever forgive back taxes?
The IRS can forgive back taxes. Tax forgiveness isn't something the IRS grants automatically or easily, though. After all, the agency's primary goal is to collect the taxes owed. Still, the IRS recognizes that not all taxpayers can pay their full tax liability, and there are programs in place to help taxpayers settle their IRS tax debts in a manageable way, some of which may reduce the overall amount owed. Here are the main scenarios in which the IRS may forgive back taxes:
The 10-year statute of limitations
The IRS has a limited window to collect unpaid taxes — which is generally 10 years from the date the tax debt was assessed. If the IRS cannot collect the full amount within this period, the remaining balance is forgiven. This is known as the "collection statute expiration date" (CSED). However, the 10-year clock can be paused or extended under certain conditions, such as if you file for bankruptcy, leave the country for an extended period or submit an offer in compromise (OIC).
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Offers in compromise (OIC)
An offer in compromise allows taxpayers to settle their tax debt for less than the full amount owed. The IRS may accept an OIC if it determines that:
- The taxpayer cannot pay the full amount through a lump sum or installment agreement
- Collecting the full amount would cause undue financial hardship
- It is unlikely to collect the total debt within the statute of limitations period
The IRS evaluates factors such as your income, expenses, assets and overall financial situation before making a decision.
Innocent spouse relief
If your tax debt stems from a spouse's error or fraudulent activity, you may qualify for innocent spouse relief. This program absolves you of responsibility for the tax debt under specific circumstances. To be eligible, you must prove that you were unaware of the error and had no reason to suspect wrongdoing.
Currently not collectible (CNC) status
Taxpayers facing extreme financial hardship can request that their account be placed in currently not collectible status. While this does not eliminate the debt, it temporarily halts IRS collection efforts, such as wage garnishments and bank levies. If the CNC status persists long enough, the 10-year statute of limitations may eventually expire, leading to forgiveness of the remaining balance.
What options do I have for settling old IRS tax debt?
If you're struggling with back taxes, there are several options available to help you manage and settle your debt. These include:
Take advantage of an installment agreement
An installment agreement allows you to pay the debt over time in monthly payments. The IRS offers different types of installment plans, including short-term and long-term agreements. While interest and penalties continue to accrue, this option can make managing your tax debt more feasible.
Utilize a partial payment installment agreement (PPIA)
A partial payment installment agreement is similar to a standard installment plan but allows you to pay less than the full amount owed. This option is often used by those who do not qualify for an offer in compromise but still cannot afford to pay their full tax liability.
Pursue penalty abatement
In some cases, the IRS may agree to waive penalties associated with unpaid taxes. Taxpayers must demonstrate a reasonable cause for failing to pay or file on time, such as illness, natural disasters or financial hardship.
Work with a tax relief service
Tax relief services specialize in helping taxpayers resolve their IRS debts by negotiating installment agreements, filing for an OIC or securing penalty abatements. While these services typically charge fees, they can be invaluable for those overwhelmed by the complexity of tax debt resolution.
The bottom line
While the IRS does forgive back taxes under specific circumstances, achieving forgiveness often requires navigating complex rules and submitting detailed applications. Understanding your options can make the process less daunting and improve your chances of finding relief. If you owe back taxes, just be sure to take action sooner rather than later, as ignoring the issue can lead to additional penalties, interest and even legal consequences.
