Is tax debt forgiveness really possible or is it too good to be true?
While some illusions are simply harmless distractions, trusting tax forgiveness fantasies can unravel the very fabric of your existence. This might sound dramatic, but if you’ve ever gone head to head with the IRS, you know the hyperbole is apt. “Tax forgiveness,” while ideal in concept, is not a tangible solution for your liability.
Well over half of the individuals and businesses with unpaid tax debt owe less than $5,000
There are, however, a number of desirable programs you may qualify for that would forgive all or part of your liability. As you search for a viable solution, it’s easy to be led astray by unscrupulous organizations that promise the world and only cost you precious time and money. Consider these basic, practical resolution options as you avoid stumbling down the wrong path.
Depending on your marital circumstances, this program may be optimal. Innocent Spouse can allow you to negate responsibility for your spouse’s tax misadventures. Simply put, if your significant other incurred a liability from return errors that you had no part in and had no reason to know about, you can avoid sharing the tax bill. The IRS approves cases for qualified applicants who can furnish valid documentation that supports their claim. This proposition is not a forgiveness program, but it does ensure the liability falls on the responsible party.
Offer in Compromise
The closest thing to tax debt forgiveness is the Offer in Compromise or OIC. This is essentially a settlement agreement that you set up with the IRS. An OIC allows you to pay far less than what you actually owe to resolve your tax debt. That’s the good news.
The bad news is that very few people actually qualify for an Offer in Compromise. Typically fewer than 25% of applicants get approved for OICs each year. And there are drawbacks to requesting an OIC if you’re not approved; the statute of limitations on your debt (ten years from the date of assessment) gets suspended while you wait. In other words, if the IRS reviews your request for a year and you’re denied, that year gets added to the life of your debt.
In addition, you’re required to disclose detailed financial information during your request. This can backfire on you if the IRS determines you have the ability to pay your debt by, say, liquidating assets or borrowing against a retirement account.