It can happen to anyone. Getting behind on your taxes is a far too common occurrence. Yet tax debt can often be overwhelming, threatening your financial security and making it hard to keep up with your other bills.

If you owe money to the Internal Revenue Service (IRS), there are options. In some situations, the IRS may forgive part of your outstanding tax debt. Generally, if you owe more money than you can reasonably pay based on your present financial circumstances, you may qualify for IRS tax debt forgiveness. 

Making an offer in compromise can enable you to pay off your tax debt for a fraction of what you owe. As a New Jersey tax attorney can explain, there are strict eligibility criteria for offers in compromise. Read on to learn more about whether you may qualify for this program, and how you can take advantage of tax debt forgiveness through the IRS.

How Much Do I Owe?

If you owe any amount of money to the IRS, it may be possible to have part of that debt forgiven. The first step in doing so is to figure out exactly how much you owe if you don’t already know the amount. The best way to do that is by contacting the IRS directly, either through your online taxpayer account, by calling the IRS at 1-800-829-1040, or by requesting an account transcript.

The IRS may have already started a collection action against you. They may do this in a number of ways, including:

If you have received a notice that the IRS is starting a collection action against you, the first thing that you should do is consult with a tax lawyer. They can advise you of your options, including seeking tax debt forgiveness if appropriate.

How Can I Get My Tax Debt Forgiven?

If you are able to pay some portion of your current IRS tax debt, you may be able to apply for an IRS offer in compromise, or IRS OIC. This program is a way for taxpayers to settle their outstanding federal tax debt. There are strict eligibility requirements for the IRS OIC.

The IRS will only accept an offer in compromise if there is (1) doubt as to the collectability of the debt; (2) doubt as to the taxpayer’s liability; or (3) for the purposes of effective tax administration. In other words, if the IRS believes that you are unlikely to be able to pay the full amount, that you may not actually owe the taxes in question, or if collecting the taxes would create an economic hardship. Most taxpayers who are eligible for an IRS OIC qualify because there is some doubt as to the collectability of their tax debt.

The decision to accept an IRS OIC is based on your reasonable collection potential. This means that the IRS will settle your tax debt if the amount you offer meets or exceeds the reasonable collection potential, which is the amount of money that the IRS could reasonably expect to collect before they run out of time to collect on it. This determination is made by evaluating your ability to pay, which includes your future income potential, expenses, and asset equity. 

There are other strict requirements for submitting an IRS OIC. You must have filed all of your federal tax returns and made all required estimated tax payments for the current year. For business owners, all required federal tax deposits for the current quarter must have been made in order to submit an IRS OIC.

It can be difficult to determine whether you meet the OIC standards, and if so, what your IRS OIC should be. Our Offer In Compromise Pre-Qualifier Tool can help you determine if you are eligible to make an OIC, and if so, what a reasonable OIC should be. Keep in mind that this tool is simply a guide, and is not a substitute for legal advice. If you have questions about how to resolve your tax debt, you should talk to an attorney.

What Is the IRS Fresh Start Program?

Qualifying for an IRS OIC can be difficult. Recently, the IRS expanded its Fresh Start program, which offers more flexible OIC terms to allow financially distressed taxpayers to become current on their back taxes.

Typically, the IRS will not accept an offer in compromise if it believes that a taxpayer can pay off their tax debt, either through a lump-sum payment or via a payment plan. Recognizing that many taxpayers are struggling to pay their bills, the IRS recently expanded its Fresh Start program to broaden the criteria under which a taxpayer may qualify for an IRS OIC. These changes focus on the financial analysis that the IRS uses to determine eligibility for an OIC.

Under the Fresh Start program:

  • The IRS will analyze 1 to 2 years of future income, rather than 4 to 5 years of future income to determine reasonable collection potential. The specific time frame is determined by the proposed payment period:
    • For offers paid in 5 or fewer months, the IRS will look at 1 year of future income (instead of 4 years);
    • For offers paid in 6 to 24 months, the IRS will look at 2 years of future income (instead of 5 years).
  • Taxpayers can make the minimum payments for federal student loans.
  • The allowable living expense standards now include a broader range of expenses,
  • Taxpayers may be able to pay their delinquent federal, state, and/or local taxes in monthly installments if they are unable to pay in full.
  • The dollar threshold for installment agreements has doubled.
  • Equity in income-producing assets will generally not be included in the analysis for ongoing businesses.

As a result, more taxpayers than ever before will be able to take advantage of IRS tax debt forgiveness. If you have delinquent taxes or simply want to explore your options for resolving your outstanding taxes, a New Jersey tax attorney can advise you of your legal rights and how you address these issues.

If You Owe Money to the IRS, We Are Here to Help.

Paying your taxes in full and on time can be challenging. There are many reasons why a person might get behind on their taxes. If you owe money to the IRS, we can work with you to find a solution to the issue.

At Paladini Law, we put our knowledge and experience of tax law to work for our clients. While not every taxpayer will qualify for an IRS OIC, we work collaboratively with our clients to help them address their tax issues and avoid criminal or civil liability. To schedule a consultation with a skilled New Jersey tax lawyer, reach out today at 201-381-4472, or fill out our online contact form.