Can the IRS Forgive the Taxes That You Owe Them?
- An OIC allows taxpayers to have a portion of their tax debt forgiven by settling the debt with the IRS for less than is actually owed. To qualify for an OIC, a taxpayer must fall within one of three categories. There must be a doubt of collectability, doubt of liability, or the taxpayer must meet the criteria for effective tax administration. Doubt of collectability means it's uncertain whether the IRS will be able to collect the debt; doubt of liability is uncertainty as to whether you owe the debt; and effective tax administration means that there is an additional circumstance which the IRS should consider. To request OIC, complete form 656 and include the $150 fee.
- Taxpayers who are currently experiencing a hardship can apply to postpone repayment of their taxes. To determine if you qualify, call the IRS at 800-829-1040 and make the request. The IRS agent with whom you speak will make a determination of whether or not your allowable expenses --- such as food, clothes, and shelter --- are a high enough proportion to your monthly income to cause a hardship. Depending on the amount of tax you owe, you may be required to submit IRS form 433-A before your request is considered. If your allowable expenses are a large enough percentage of your gross income, then there is a high likelihood that you will be approved for CNC status. Penalties and interest continue to accrue during this CNC period. Examples of taxpayers who are granted CNC status are those who are unemployed, or aren't able to work due to illness or disability. If your CNC request is granted, your case will be reviewed every 18-24 months to determine whether you still meet the criteria to be approved for CNC.
- Although forgiveness of penalties is not a forgiveness of the tax owed, it still lowers your tax bill. To request an abatement of the penalties assessed on your tax debt, complete IRS form 843 and mail it to the service center that processed your return. If you are not sure which service center processed it, consult the IRS website for a full list. When deciding whether to grant your request for an abatement, the IRS will consider whether you made a good-faith attempt to meet your tax obligation, so it is important that you provide the IRS with a thorough explanation of the event which prevented you from meeting your tax obligation. For example, if you were ill, detail the date your illness began, your condition, and how long it lasted, as well as any additional pertinent information. You are not expected to send documentation with form 843, but are required to furnish it if the IRS requests it.
