Do you know how many Americans owe the IRS back taxes on their personal income? It might come as a surprise, but the IRS claims that over a million taxpayers owe them money.
So, how is the IRS ever going to collect on all of those back tax debts? They won't. Not only that, but they can't. With limited resources, a criminally understaffed employee-base, and a huge number of taxpayers with accrued debts, there's simply no way the IRS can keep up. Because the IRS is unable to collect on all of those back taxes, IRS tax debt forgiveness programs were instituted.
Three things that are in your favor…
#1) Statute of limitations on collections: Did you know, under most circumstances, that there is a clock running on the IRS's ability to collect back taxes from you? After the necessary time has passed, your debt is removed.
There are definitely situations where it would be more prudent to not enter into any deals with the IRS. After all, if your circumstances call for it, it's possible you won't have to pay back anything. If you'd like to learn when your tax debt expires without raising any red flags, click here to learn about our service that can tell you exactly what you owe and when your tax debt expires.
#2) Blood from a stone: There is no difference in how much you owe if you don't have the money to cover your debts. It's called "reasonable collection potential" (RCP). If you are dead broke — meaning you have absolutely no assets — your RCP is $0. If you were to offer the IRS more than $0, then — despite how absurd it might sound — offering the IRS $1 might be a good deal for them.
#3) Bankruptcy: Under certain circumstances, Chapter 7 bankruptcy can completely eliminate and wipe out personal tax debts. The IRS could walk away without collecting a single penny. There are a number of features, benefits, and disadvantages of bankruptcy that should be considered before setting off down that road.
IRS tax debt forgiveness programs
Currently Non-Collectable Status (CNC)
If your Reasonable Collection Potential is low and the assets you have aren't worth anything or are inaccessible, you may be able to qualify for CNC. CNC means that you don't have to make any payments to the IRS, aside from your current withholdings or estimated tax payments. CNC keeps the clock running, so if you are to remain in CNC for the duration of the statute of limitations, it's quite plausible that you won't have to pay the IRS anything.
Also, there are time requirements when it comes to bankruptcy, and oftentimes you must wait in order to discharge a debt. CNC can be the program that gets you through to the important date when you are able to file bankruptcy or use the bankruptcy card as a tool for negotiations.
Partial Payment Installment Agreement (PPIA)
A PPIA is what you may qualify for if you have too much of a Reasonable Collection Ptential for CNC (in other words, when your income and assets are too high to reasonably land you in non-collectable status). A partial payment installment agreement means that instead of not having to pay anything to the IRS, you will need to pay them something each month. Much like a mortgage or a car loan, you're working at reducing your owed debt.
When entered into a PPIA, the same benefits apply as CNC — you are running down the collections clock and may get closer to being able to file bankruptcy or have the collection period expire and eliminate your debt entirely. If you think a PPIA might be the best program for your situation, it's well worth taking the time to learn more about what constitutes a partial payment installment agreement.
If the amount you are paying does pay off the debt within the remaining collection period, that would likely be a regular installment agreement, not a PPIA. But make no mistake about it, negotiating an installment agreement may not be all that easy — the IRS much prefers to get its money sooner rather than later. It's important to only enter into an installment agreement or PPIA that you know you can handle. Many taxpayers fall into the trap of being intimidated into a repayment schedule that they simply can't afford.
Offer in Compromise — Doubt as to collectability
There are a number of offer in compromise options available with the IRS, but they each tend to be different beasts. The one I want to focus on is a specific type of offer — doubt as to collectability — the most common type of IRS tax forgiveness program we use to settle ours clients' tax debts for far less than what is owed.
Just like bankruptcy and payment plans, it's important to know what you're getting into. There are a number of tactics and tips for submitting an offer in compromise that the IRS will agree to, and it is definitely in your best interests to be aware of them. Understanding your situation and what you can do to convince the IRS that you're working with them is the first step to removing their influence from your life.
The IRS isn't being generous
The IRS doesn't forgive debts out of kindness or generosity. They forgive tax debts because the reached resolution is in their best interest. The key is to align yourself with the government's best interests, but only when the outcome also works in your favor. Much like the necessity of understanding the importance of the word "compromise" in an offer in compromise, you have to be willing to meet the government partway.
As with all tax debt problems and concerns, do not feel like you are alone. There are over a million people going through similar situations and help is available. If you need help, contact us. Call us at 888-727-8796 or email email@example.com.