Tax Debt Forgiveness

The IRS Forgives Tax Debt via various tax settlement methods

Four common methods for tax debt forgiveness

  1. IRS – Offer in Compromise
  2. Abatement of Penalties and Interest
  3. Hardship or “Currently Non-Collectible” status
  4. Bankruptcy

More about the 4 Tax Debt Settlement methods:

1 – IRS Offer in Compromise

IRS - Offer in CompromiseAn IRS – Offer In Compromise allows the taxpayer to settle his or her tax debt for less than the full amount owed. The IRS considers an OIC to be a legitimate option if the taxpayer cannot pay their full tax liability, or paying the tax debt would create a financial hardship. The IRS will consider a taxpayer’s unique set of facts and circumstances:

  • Taxpayer’s Ability to pay;
  • Taxpayer’s Income;
  • Taxpayer’s Expenses; and
  • Taxpayer’s Asset equity.

The IRS – Offer in Compromise is the most well-know program and is often referred to in radio and TV commercials as the “pennies on a dollar” IRS settlement program. Approximately 30% of all submitted Offers in Compromise are accepted by the IRS. The process of successfully getting an Offer in Compromise accepted by the IRS can be somewhat complex and lengthy. It is strongly advised to consult with a Tax Resolution Lawyer to see if your specific circumstances qualify for an Offer in Compromise before venturing down that path.

2 – Abatement of Penalties and Interest

Many IRS Penalties can be abated or removed. Each taxpayer’s case if completely dependent upon its own unique set of circumstances.

The purpose of IRS penalties

IRS Tax penalties are designed for one purpose: to encourage voluntary compliance.

Contrary to public belief, the IRS can sometimes be persuaded to reduce or eliminate penalties. There are guidelines in the IRS agent handbook which are consulted when determining reasonable cause that might warrant abating a penalty. They include such things as:

  • Forgetfulness
  • Ignorance of the law
  • A mistake made despite ordinary business care and prudence
  • Death, serious illness or unavoidable absence
  • Inability to obtain records
  • Inability to obtain tax forms
  • Return was filed at the wrong IRS office
  • Followed advice from a tax adviser
  • Followed oral advice from the IRS
  • IRS error

3 – Hardship – “Currently Non-Collectible” status

If you are unemployed or underemployed and cannot make a payment, you can request to be considered in “uncollectible status.” This is the process the IRS uses to freeze the collection account. The IRS will cease any attempts to enforce collection in order to give you time to get back on your feet financially.

While “uncollectible status” will not be a permanent solution to ones tax problem, it does help by stopping collection harassment, bank levies, wage levies, and property seizures. In order to apply for “uncollectible status,” the taxpayer will need to file a financial statement on Form 433A for individuals, and Form 433B for businesses. These financial statements are to convince the IRS that all the money you earn is needed to provide for necessary living expenses for you and your family. Uncollectible status, if approved, would help you to stay afloat until you are able to pay the tax or apply for complete “Tax Forgiveness” under another IRS program.

4 – Bankruptcy

The Bankruptcy Code does offer many debtors substantial income tax relief through the federal bankruptcy process. It is a common misunderstanding that filing bankruptcy cannot eliminate an individual’s tax liability. Whether or not your particular bankruptcy filing relieves your tax debt depends on several factors including the nature of tax liability and the type of bankruptcy proceeding —typically either Chapter 13 or Chapter 7. Attorney Paul Staley has been filing bankruptcies for years and can advise you if bankruptcy can help you with your tax liabilities.

Chapter 13 Bankruptcy – Repayment Plan

A Chapter 13 bankruptcy allows a taxpayer to enter into an agreement to pay back taxes in accordance with his or her ability to make monthly payments. When very specific rules are met, whatever tax debt that cannot be reasonably paid back within Bankruptcies’ maximum 60-months maximum might be discharged.

Bankruptcy –vs– Offer in Compromise

Recently, the IRS has overhauled OIC (Offer in Compromise) program so as to make that program a more attractive procedure than filing bankruptcy. The IRS claims that the revamped Offer in Compromise process has successfully changed the minds of thousands of taxpayers who were considering filing bankruptcy and switched to the OIC program. San Diego Tax Resolution Lawyer Paul Staley will be able to advise you as to the benefits and drawbacks to these differences and advise you as to your unique set of circumstances.

By our exploration the option of filing Bankruptcy, we can make a stronger case for a more favorable Offer In Compromise to be approved.

Should your unique circumstances qualify you to discharge some or all of your tax debt through bankruptcy, informing the IRS that you are considering the bankruptcy option when filing for an Offer In Compromise will give more power to your OIC submittal with a greater likelihood for the approval of your Offer with the resultant forgiveness of a portion of your tax debt. We are prepared to demonstrate to the IRS that they will collect more back taxes by accepting your Offer In Compromise than they will by forcing you into bankruptcy.

Chapter 7 – Some Taxes Totally Discharged for a “Fresh Start”

Filing a Chapter 7 bankruptcy is a federal process that does allow for certain taxes to be completely discharged (forgiven) and provides the taxpayer with a true “fresh start.” For some taxpayers, a Chapter 7 bankruptcy is the best and fastest way to eliminate tax debt entirely while creating a fresh start —a do over— where you will be set free from IRS liens and levies. When a Chapter 7 bankruptcy is properly filed, the IRS must forgive your tax debt which will truly permit you start over with no debt and a clean slate.

Chapter 7 – Some Taxes Totally Discharged for a Fresh Start
Examining the option of filing a Chapter 7 bankruptcy may prevent you needing to file bankruptcy. If it can be determined that you are an excellent candidate to file a Chapter 7 bankruptcy, tax resolution lawyer Paul Staley can use knowledge to more effectively petition the IRS for non collectible status for a period of time. Later on, when your life situation improves, you could then make an Offer in Compromise. By demonstrating to the IRS that you are a perfect candidate to file a Chapter 7 bankruptcy might sufficiently persuade the IRS the perfect motivation to allow you more time to get yourself more financially recovered. Many financial experts counsel people to treat bankruptcy as a last chance solution to settle your consumer debt and tax debt, therefore using the treat of filing might get some leniency from the IRS where you won’t have to use the bankruptcy option.

Criteria necessary to Discharge Tax Debt through Bankruptcy

You can discharge tax debt, and receive real tax debt forgiveness, for federal income taxes
in Chapter 7 bankruptcy only if all of the following conditions are true:
  • Tax debt to be discharged are income taxes. Taxes other than income tax, such as payroll taxes cannot be forgiven through bankruptcy.
  • You did not commit fraud or willful evasion. If you filed a fraudulent tax return; if you attempted to evade paying taxes bankruptcy will not forgive your tax debt.
  • Some or all of your tax debt must be at least 3-years old to qualify. The tax return(s) and debt must have been originally due at least 3-years before you file for bankruptcy.

Contact Attorney Paul Staley to inquire about Tax Debt Forgiveness

Call the Tax Resolution Lawyers at Paul Staley today to see if you can qualify for one or more Tax Debt Forgiveness programs offered by the IRS and many state tax agencies. We will discuss with you all your options including the IRS Offer in Compromise, possible penalty and interest abatement, petitioning for non collectible status, or bankruptcy options that some will choose to get a fresh start.

Get some help —Make that call!

San Diego Tax Resolution Lawyer Paul Staley provides a no-obligation, confidential consultation and has appointments available for evenings and weekends. We accept all major credit cards and can make other payment arrangements so that we can help you get your tax problems straightened out without adding additional layers of financial burden on you and your family. To speak to Paul now, or to schedule a confidential free consultation call (619) 235-9645.