Does the IRS have a one-time tax amnesty or forgiveness? Well…

There are millions of US taxpayers with tax related debts, and you can bet your bottom dollar that the government is aware that collecting from all of those people isn't going to be easy. The government has neither the budget nor manpower to correctly determine every individual liability and to then follow up and collect what they are owed. Well, luckily for some people, tax amnesty and forgiveness programs can be a great solution if they have a tax debt. Tax amnesty and forgiveness programs are aimed at collecting some of the accrued debts for state and federal treasuries while still remaining reasonable for taxpayers.


State Amnesty Programs vs. IRS Fresh Start and other federal programs


From time to time, most states have some type of amnesty program. I like to think that these states realize that cutting taxpayers a break is one of the best ways to a) collect some of the money owed and b) to help their residents stop living in fear. So many people refuse to fix their tax problems because they think that the accrued interest and penalties would overwhelm them. Some of the most recent states to announce tax amnesty programs — Indiana, Oregon, and Oklahoma —  are looking to help both themselves and their residents by giving them a reason to come out of hiding and put their tax problems to rest.


These programs typically involve a taxpayer filing a few years of unfiled tax returns and making a substantial payment on the amount owed. Ultimately, the amount of back taxes you will pay is awfully close to what the total tax bill is, but — and this is the critical difference — the amount you pay is independent of your ability to pay. While you might have the money to fully pay your back taxes and whatever penalties and interest there might be, states typically do not expect the full amount from the start. States just want their money by the end-date of the amnesty program.


These amnesty programs typically provide some sort of promise to not press criminal charges. The vast majority of the time, potential state charges stem from unpaid sales and use taxes. While it is possible to be charged with tax evasion for state income taxes, those prosecutions are exceedingly rare.


Compare this to an IRS settlement program


IRS tax debt and amnesty settlement programs, which usually have no end date, only reduce the amount you repay according to your ability to pay. In order to reduce your tax bill, you must be able to show that you simply cannot afford the entire amount. If you are going to have any chance of repaying the debt, it will have to be substantially lowered.


The good news is that with IRS tax settlement programs, you can significantly reduce your back tax bill. Also, there is usually a 10-year statute of limitations (CSED) on the collection of back taxes. Consequentially, the IRS is more willing to be realistic about what it expects it can collect (See 433-A). In addition, it is always possible for federal income taxes to be discharged in bankruptcy, which puts additional pressure on the IRS to settle taxes.Many states have no statute of limitations on collections, so they feel as if they are under no pressure to take substantially less. Their thinking can pretty much be summed up as, "A taxpayer could always win the lottery, right?"


For a detailed description of the Federal Amnesty programs available, including the programs for those concerned about criminal charges, visit one of our most popular blog articles here.


If you have a tax debt and need help, contact us. We can help.