Can Tax Debt Be Forgiven?

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Owing money to the Internal Revenue Service (IRS) can put an immense amount of stress on you, but you don’t need to get depressed when there are options available. While the IRS has a reputation for being strict when it comes to their money, even the biggest and most delinquent debtor has a variety of ways to address the problem. As a governmental agency, the IRS knows that people do face genuine financial hardships. Some people may not be able to fork over an exorbitant amount of money; others may be sick and unable to work. As such, the IRS offers a plethora of options for taxpayers who are struggling with debt.

Bankruptcy Protection

Chapter 7 and 13 bankruptcy are two viable options if you’re concerned about the debt you owe to the IRS. If you declare bankruptcy, you should weigh all of your options before deciding. The IRS has specific criteria that apply to chapter 7 bankruptcy. First, the tax debt must be at least three years old. In addition, you need to be current with the rest of your tax filings. If these apply to you, bankruptcy may be your best option. Before deciding, you should weigh your other options.

Innocent Spouse

You also have options under the innocent spouse protection program. If your spouse ran up a tax bill without your knowledge, you may be able to have this debt forgiven. To apply for innocent spouse relief, you must request Form 8857 from the IRS. Certain conditions apply to innocent spouse protection. In addition to not knowing about the error, you may have to demonstrate that a reasonable person in the same situation would not have known about the mistake. However, if you are the victim of domestic abuse, the IRS can overlook the knowledge aspect of the innocent spouse protection program.

Offer In Compromise (OIC)

One of the chief ways that people renegotiate their tax debt without bothering to file for chapter 7 bankruptcy is the OIC. An OIC occurs when you make a deal with the IRS. Simply stated, you agree to pay less than the amount you actually owe. You can estimate the most that you can reasonably pay. Then, you offer to pay the IRS this amount. If the IRS accepts, the rest of your debt will be forgiven. If you’re considering an OIC, there are a few things that you should know. Before the IRS will approve your OIC, your taxes need to be current. Everything needs to be filed, up to the latest year’s tax returns. You can make an offer and pay a lump sum, or you can make payment arrangements and pay your bill in monthly installments.

Currently Not Collectible (CNC)

If you apply for CNC, your tax debt will not go away. Your debt is still there, but the IRS recognizes that you’re dealing with a financial hardship. To get approved for CNC status, you’ll need to fill out one of the appropriate 433 forms. You’ll also need to prove your financial status. The major drawback to the CNC protection is that you will incur interest and late penalties until the debt is satisfied.

If you’re dealing with an oppressive tax debt, you should know that you have several options. While chapter 13 bankruptcy is one choice, it’s not the only one. You should carefully evaluate your financial situation before deciding. If your spouse is responsible, you may be better off filing for the innocent spouse protection program. When you’re certain you can’t pay, the OIC may be the better choice. Either way, you should deal with the problem proactively. Late fees and interest charges will continue to grow your debt until it’s resolved.