The Realist’s Guide to Tax Debt Forgiveness

How to avoid turning a tax fantasy into a living nightmare.

While some illusions are simply harmless distractions, trusting tax forgiveness fantasies can unravel the very fabric of your existence. This might sound dramatic, but if you’ve ever gone head to head with the IRS, you know the hyperbole is apt. “Tax forgiveness,” while ideal in concept, is not a tangible solution for your liability.

Fact: Well over half of the individuals and businesses with unpaid tax debt owe less than $5,000[1]

There are, however, a number of desirable programs you may qualify for that would forgive all or part of your liability. As you search for a viable solution, it’s easy to be led astray by unscrupulous organizations that promise the world and only cost you precious time and money. Consider these basic, practical resolution options as you avoid stumbling down the wrong path.

Innocent Spouse

Depending on your marital circumstances, this program may be optimal. Innocent Spouse can allow you to negate responsibility for your spouse’s tax misadventures. Simply put, if your significant other incurred a liability from return errors that you had no part in and had no reason to know about, you can avoid sharing the tax bill. The IRS approves cases for qualified applicants who can furnish valid documentation that supports their claim. This proposition is not a forgiveness program, but it does ensure the liability falls on the responsible party.

Pop Quiz

Which of the following could make you ineligible to qualify as an Innocent Spouse on unpaid tax debt if you filed jointly?.

a) You failed to ask your spouse questions that a reasonable person would ask

b) There were inaccuracies in your return that were a big departure from previous years

c) You failed to question a significantly large return

d) All of the above

Reveal Answer

Tip: The IRS considers your financial situation, education and filing experience, whether reasonable questions were asked, and how much of a departure that year’s return was from other years.

d) All of the above

Return to question

Offer in Compromise

The closest thing to tax debt forgiveness is the Offer in Compromise, or OIC. Essentially a settlement agreement, the OIC allows you to pay far less than what you actually owe to resolve your tax debt. That’s the good news. The bad news is that very few people actually qualify for an Offer in Compromise, with typically fewer than 25% of applicants being approved each year. And there are drawbacks to requesting an OIC if you’re not approved; the statute of limitations on your debt (ten years from the date of assessment) is suspended while you wait. In other words, if the IRS reviews your request for a year and you’re denied, that year gets added to the life of your debt. Also, you’re required to disclose detailed financial information during your request. This can backfire on you if the IRS determines you have the ability to pay your debt by, say, liquidating assets or borrowing against a retirement account.

Currently Not Collectible

There is a chance that you can get away without paying the IRS anything at all. If you truly can’t afford to pay back your tax debt, you can request to be considered Currently Not Collectible (CNC). In order to qualify, though, your circumstances must be such that paying any amount toward your liability would present you with a financial hardship. CNC status is also temporary, meaning that the IRS will revisit your case to reassess your ability to pay. In theory, though, if your situation remains unchanged for long enough, it’s possible to outlive your tax debt without paying a dime.

Cautious Optimism

Having a tax debt isn’t the end of the world, as the IRS does provide a handful of helpful programs that you may actually qualify for. At the same time, it’s wise to proceed cautiously. For starters, it’s a good idea to consult with a tax resolution company before taking action. Such a consultation is typically at no cost to you and can provide you with valuable insight on what your best resolution strategy is. After all, there’s nothing wrong with finding a legal solution to your tax problem, provided it’s rooted firmly in reality.

If you need help developing a repayment strategy or seeing if one of the above solutions can help you, call us at 1-888-470-4531 or complete the form to the right to request help online