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IRS Debt Forgiveness Guide

Guide to IRS Debt Forgiveness

Seeking IRS debt forgiveness is important. It is possible to get a fresh start even if you owe the taxman. The IRS has programs and initiatives that can be used by persons who can’t afford to settle their tax debts for a variety of reasons.

Individuals who fail to seek tax forgiveness face unfavorable IRS actions like tax levies that give the IRS the power to seize your assets immediately. You could also face wage garnishment, which gives the IRS power to deduct due taxes from your paycheck.

What is IRS debt forgiveness?

IRS debt forgiveness doesn’t cancel all debt completely unless under very unique circumstances discussed below. In fact, the IRS doesn’t have an official debt forgiveness program. However, there are initiatives that taxpayers can use if they face problems settling federal tax debts.

IRS tax debt forgiveness focuses on finding reasonable ways for taxpayers to settle their debt based on their income and expenses. Debt forgiveness may also reduce tax debt.

What are some of the debt forgiveness programs?

Through the IRS’s Fresh Start Program, it’s possible to seek debt forgiveness through;

I. Tax lien withdrawal

Taxpayers can request the IRS to withdraw a tax lien attached to the property if the tax debt is equal to or less than $25,000. However, the taxpayer must get into a tax installment payment agreement where due taxes are deducted directly from their bank via direct debit.

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A taxpayer also needs to agree to settle their tax debt entirely within 60 months or before expiry of the Collection Statute (usually ten years from the tax assessment date). Other conditions include making three prior direct debit deposits and complying with every other IRS requirement on filing and paying taxes. Taxpayers also need to complete and submit FORM 12277.

II. Instalment agreement

It’s also possible to get more time to settle your tax debts through an extended installment agreement. You can request extended installments online. The agreement gives taxpayers up to 72 months to settle owed taxes.

Installments can also be spaced as per the Collection Statute expiry date or whichever comes earlier. A taxpayer may be required to submit a special statement – collection information statement if they don’t meet certain conditions.

The statement gives the IRS a detailed account of a taxpayer’s bank/s, investments, retirement accounts, whole-life insurance covers, real-estate/property/assets owned, credit cards, wages, other income information, and living expenses. Taxpayers who owe $25,000 or less aren’t required to submit a collection information statement.

III. Penalty relief

The IRS can also offer relief from penalties charged on due taxes. IRS penalties can accumulate very fast, making it impossible to pay all tax debt. IRS’s Fresh Start program allows taxpayers to completely eliminate or reduce accrued tax penalties due resulting in significant relief and savings.

To qualify for penalty tax relief, a taxpayer must have made an effort to meet tax obligations but faced unavoidable circumstances. The IRS has three penalty relief mechanisms namely, reasonable cause, statutory exception, administrative waiver & first-time penalty abatement.

How soon can you be debt free?

Typical reasons that may qualify relief based on reasonable cause include natural disasters, death, and serious illness. Statutory exceptions leading to penalty relief include receiving erroneous written advice from the IRS. Penalty relief under first-time penalty abatement applies in some conditions.

IV. (OIC) Offer in Compromise

An OIC program allows taxpayers to pay less in tax debt than the total amount owed. An OIC can is a good IRS debt forgiveness tool when a taxpayer offers to pay a reasonable amount before the Collection Expiry date.

OICs should be used as debt forgiveness tools when a taxpayer can’t pay owed taxes through other means, including an installment agreement. It’s possible to check if you pre-qualify for an OIC online.

Other IRS tax forgiveness initiatives and programs

There are other initiatives such as the CNC (Currently Not Collectible) that can offer an avenue to seek complete forgiveness temporarily if you show beyond a reasonable doubt that you can’t be able to pay your tax debts currently. You can also claim forgiveness for tax debts incurred by your spouse through innocent spouse relief.


The above quick guide on IRS debt forgiveness offers basic information. There’s more to tax forgiveness than what is discussed above. What’s more, the consequences of lacking proactiveness in tax debt matters are dire. The importance of understanding the above programs and initiatives completely before using them can’t therefore be overemphasized. It’s advisable to seek professional help.

Call or fill our form to claim a free professional consultation with an expert on IRS debt forgiveness.