IRS Tax Forgiveness

The IRS has outlined a number of solutions that can get your tax debt forgiven; partially in most cases unless the situation justifies one hundred percent forgiveness. Although the IRS has collection initiatives whereby a debtor has his property and other assets seized to compensate for taxes, if the officials see that this collection process will push the debtor into a long standing financial crisis, they will put debt forgiveness options in front of you instead of taking hard measures. Therefore, the IRS collects only as much as you can afford to pay in taxes. Your current financial standing, in terms of bank balance and employment status, is the primary parameter while considering tax debt forgiveness options for you. Hence, your financial condition needs to be stated and proven with clarity with the help of relevant documents to expedite the process of debt forgiveness.

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The following options, as described in detail by the Internal Revenue Service, are available to get your tax debts forgiven.

Complete Forgiveness Options

In order to be eligible for full forgiveness of your outstanding debt, the only option is to file for bankruptcy, which should ideally be the last resort. Before you file for it, you should know that it impacts your future transactions such as ability to book automobile or housing and even credit reputation. So unless there is absolutely no other way out of debt, only then you should consider filing as bankrupt. Since it is a complicated, time consuming and expensive process, it is generally suggested to thoroughly go through other options before making this decision.

Go through these considerations to file for bankruptcy as a way of debt forgiveness;

• Bankruptcy stays documented on your credit history for about a decade.


• Filers are, in most cases, obligated to go through a 6 month period of credit counseling which involves closely weighing all other options of debt forgiveness other than bankruptcy.


• The number of credit counselors qualified to do this job is quite small; which is why they offer online services as well so that debtors may easily to consult them.


• Although not compulsory, it is highly suggested that you hire legal help in the form of an attorney or tax lawyer before filing.


• Bankruptcy cases are dealt with in the federal courts and may cost you a lot in travelling back and forth, in addition to the court fees.

There are quite a few types of bankruptcies laid down by the authorities, out of which Chapter 7 is the most commonly used for full writing off of debts. It is most commonly used by individuals and married couples.

Chapter 7 Bankruptcy

About 70% of bankruptcy cases are dealt under Chapter 7. Most of the debts are forgiven completely and the filer does not remain obligated to repay any more. The authorities, in exchange of complete forgiveness, may resort to selling some of your assets to compensate the entities affected by your inability to pay taxes.

How much of your assets you are allowed to keep depends on the rules of the State you live in. You are still eligible to receive all the social security benefits promised by the State to the citizens.

In case of income tax debt, there are some conditions that must be met for you to be able to have a successful filing for bankruptcy, asking for full forgiveness of debt.

• The date you filed the respective returns which you were unable to pay must have been at least 2 years before the date you filed for bankruptcy.


• Any kind of intentional tax dodging and fraudulent practices must not have been committed by you when you filed tax returns.


• The IRS must have looked into the due taxes in detail at least 8 months before you filed for bankruptcy.

Partial Forgiveness Options

Partial forgiveness plans are comprehensively defined by the IRS, which make it easier for the debtors to repay a certain percentage of their unpaid taxes under a structured plan agreed upon by both the debtor and the credit authority.

Chapter 13 Bankruptcy

Chapter 13 Bankruptcy is for those who have higher income levels, making them ineligible for Chapter 7 and who do not wish to let go off their assets completely. Under Chapter 13, you are required to pay a certain percentage of your debt while the rest is written off. There is, though, a debt threshold in this case and your total debt amount must be under this threshold for you to be eligible. Since this threshold is regularly updated, it's better to meet with a credit counselor or relevant lawyer to get the relevant information. Since Chapter 13 does not write off all the debts, it entails comprehensive repayment plans, spanning over a specific number of years, suited to the debtor. Adherence to this plan is important. If you are unable to pay according to the plan in the defined time frame, resorting to Chapter 7 for full forgiveness is the next best option.

'The next two options; Offer in Compromise and Installment Agreement, fall under the Fresh Start Program, initiated by the IRS to make tax repayments and securing written off debt agreements easier, especially for individuals as well as small businesses. This initiative was started in 2008 and what's discussed in the next two sections was included in 2012 as an expansion to the actual program'.

Offer in compromise

Offer in Compromise is kind of a negotiation debtors carry out with the Internal Revenue Service. Its main aim is to get a major chunk of the debt amount forgiven or written off by mutual understanding with the IRS.  What's left after the agreed forgiven amount is what you owe them. There are two options for its repayment.

• Short Term Offer in Compromise which entails five month period in which the left off debt has to be repaid.


• Second is the PPIA, the Partial Payment Installment Agreement, which is a long term plan spanning over a number of years making it easier for the debtor to pay. 

Your eligibility to apply for an Offer in Compromise is generally determined on the basis of your expenses, income level, value of your assets and the ability to pay the debt. When you submit your application, you can preemptively start following a payment plan in case your application is accepted. One of the payment options is the Lump Sum Cash which requires you to submit 20% of the debt amount along with the application. If accepted, you can keep paying in installments, usually five or less. The other option is the Periodic Payment which requires submitting an initial amount with the application and keep paying on a monthly basis until your offer is reviewed and accepted by the IRS.

These payment options allow the debtors to start paying without having to wait for an acceptance. Once accepted, it can continue and if rejected, other repayment plans can be followed. For more details regarding the OIC, visit here.

Installment Agreement and Tax Lien

Installment Agreement is the simplest one, also called the Payment Plan. In this, you agree upon a debt amount to be paid, which is lesser than what you actually owe. The time in which you will repay is predetermined which you have to adhere to.

In case it takes you longer than the decided and agreed upon timeline, you will have to bear fees for structuring a new long term plan. The fee is close to a $100. The maximum that the Installment Agreement allows is four months; after which the additional fee will be applicable to draft a new plan. In order to apply for such a Payment Plan, you have to fill up and submit Form 9465 to the IRS. These conditions are applicable to debts under $50,000. For bigger debt amounts, debtors may be required to provide important financial statements and the form to submit for such Installment Agreement is either the 433-A or 433-F.

Under the tax lien program, the IRS allows a debt threshold of $10,000 before issuing a lien notice. For debtors that repay their taxes will have the notice withdrawn. In other cases, the debtors that are currently following a partial repayment plan such as an Installment Agreement discussed above will also have the notice withdrawn. To do this, the Form 12277, called the Application for Withdrawal, has to be submitted before the IRS.

Debt Consolidation

Debt consolidation, as evident through the term, implies that a number of your debts, owed to multiple creditors, are combined or consolidated into a single payment. There are various benefits that you can gain from debt consolidation. Some of them include lower interest rates, streamlined debt payment and a fewer number of monthly payments among many others.

This is an indirect approach of getting loans forgiven. The debt itself is not actually written off but the costs associated with making multiple payments each month are significantly lowered which makes it easier for you to repay. The interest rates of each payment you make to a separate creditor are significantly higher than what you will pay to a single source. This is where the Debt Consolidation Plan is centered.

Debt consolidation includes a variety of differently structured plans such as the Debt Management Plan, Debt consolidation Loans and Debt Settlement Plans. The in-depth details of these repayment plans can be found here.

Temporary Delay

If you wish to get your debts forgiven only on a temporary basis because of what you believe is a short term financial crunch, Temporary Delay is the best option to go by. In this case, your deadline for payment maybe extended by the IRS, only after looking into sufficient evidence that your financial hardship is actually short term. 



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