IRS Tax Debt Forgiveness

Everyone makes tax mistakes from time to time, but sometimes it turns into a big mistake that happens at the wrong time. When that occurs, one of the best kept secrets is that, under certain circumstances, the IRS forgives tax debt, helping honest people stay honest.

Uncollectible status

If unemployed or underemployed and making a poor wage, the IRS does postpone any collection activities on your account. This might not eliminate the debt, but it does eliminate garnishments and prosecution.

Offer in compromise

Again, if the tax debt is large and income is small, like any collector, the IRS would rather have something than nothing. Negotiations are set up where you make only a partial payment, eliminating half or even more of the debt. However, you must really show that you are unable to pay or the IRS does not cooperate.

Repayment plan

Since most tax debts are discharged in bankruptcy, letting the IRS know that collection efforts can land you in bankruptcy might shake the tree a little. Often, they set up a repayment plan with you for monthly payments. After 48 or 60 months, whatever amount is not paid back is usually forgiven.

Fresh start, the last resort

Declaring Chapter 7 bankruptcy gives you a fresh start, and that includes IRS tax debt. This gives you some bargaining power. Since the IRS knows you can walk away, they want to work out any efforts for repayment.

Contrary to what many people believe, the IRS is not all powerful, and negotiating with you is a far better alternative then getting nothing. Remember this the next time you get a letter about tax debt.