How to Apply for Tax Debt Relief or Forgiveness from the IRS
About the Author
Mark Steber is Chief Tax Information Officer, responsible for key initiatives that support overall tax service delivery and quality assurance. Mark also serves as a Jackson Hewitt liaison with the Internal Revenue Service, states, and other government authorities. With over 30 years of tax experience and deep knowledge of the federal and state tax codes, Mark is widely referenced as an expert on consumer income tax issues, especially electronic-tax and data-protection issues.
You’ve determined whether you may be eligible for tax relief—now what?
Depending on your situation, here are the main relief options to consider.
Currently not Collectible: This one is pretty straightforward: if paying your tax bill would mean that you could not afford basic living expenses, you can request that the IRS classify your account as “currently not collectible.” Keep in mind: This does not erase any of your tax debt—nor does it stop penalties and interest from accruing—but it does delay IRS attempts to collect it.
- Innocent Spouse Program: If you filed jointly, but weren’t aware of something your spouse (current, former, or separated) did wrong on your return To request relief under this provision, you would need to show that you did not know your spouse failed to report some income, reported it improperly, or claimed deductions or credits that weren’t allowed. There are three types of relief.
Innocent Spouse Relief: This relieves you of the responsibility for paying taxes, interest, and penalties on what your spouse did wrong on the tax return.
Relief by separation of liability: Essentially, this relief allows you to divide the taxes, interest, and penalties due (because of an understatement made by one spouse on a joint return) between you and your spouse (or former spouse).
Equitable tax relief: Don’t qualify for one of the other two? This relief may still be an option, but there are many conditions to meet. The most important thing you should know: you can only get equitable relief from an understatement of tax or an underpayment of tax.
Garnishment/Levy Release: Most people have heard of wage garnishment, but not everyone has heard of a levy. In short, they have the same effect: money or assets are taken by the government for something you owe. Yes, the IRS can empty your bank account, keep future tax returns, and even seize and sell your property (including cars) to satisfy a debt. What can you do? If a levy or garnishment leaves you with too little money to pay for basic, reasonable living expenses, you can request a modification or release of it due to the economic hardship it causes.
Bankruptcy: This isn’t the silver bullet some think it is. Filing Chapter 7 and Chapter 13 bankruptcy, and successfully completing your bankruptcy plan may qualify you for a discharge (release from personal liability) of tax debt, but not for certain. It can also damage your credit, make borrowing more difficult, and have generally dire financial consequences. If you have already filed for bankruptcy, or think you might, be sure to discuss tax implications with your attorney.
Offer in Compromise: See the fourth action item in our “What to do if you can’t pay your taxes” article for a longer explanation of this option. To see if you may qualify for an OIC, use the IRS’ pre-qualifier tool or speak with a tax specialist. Remember, the IRS does not approve many of these so it is a long shot.
- Statute of Limitations: This is a really long shot, which is why we have listed this last. After the date your tax debt is assessed, the IRS has 10 to collect taxes, interest, and penalties from you. And, as you’ve read, they have plenty of ways to do it. Nonetheless, some tax lawyers or advisors will try to use the statute of limitation to resolve a tax case. See why we think it’s generally a bad idea to try to wait the IRS out.
Is a tax debt relief program right for you?
There’s a good chance one of the above options can help you settle your IRS tax debt. If you need help or advice about which one (or more) might be a good fit for your circumstances, don’t hesitate to get advice from a tax professional. Call now for a Free Consultation as part of Jackson Hewitt’s Tax Debt Resolution service!
About the Author
Mark Steber is Chief Tax Officer, responsible for key initiatives that support overall tax service delivery and quality assurance. Mark also serves as a Jackson Hewitt liaison with the Internal Revenue Service, states, and other government authorities. With almost 30 years of tax experience and deep knowledge of the federal and state tax codes, Mark is widely referenced as an expert on consumer income tax issues, especially electronic-tax and data-protection issues.
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