What Is IRS One Time Forgiveness and How Can It Impact You?

The IRS is never someone you want sitting opposite you at the negotiation table. But sadly, there are times when we don’t have a choice. Difficult financial circumstances, personal tragedies, or even simple clerical errors can lead to tax debt and unwanted calls. And when the IRS decides it’s time to turn up the heat, they can call for liens and levies on your property and wages and pressure you into a payment plan for your debts. However, the IRS isn’t ruthless. People can fall into tax debt without meaning to. Furthermore, the IRS has an informal bill of taxpayer rights that it adheres to. As part of its courtesies to the taxpayers of the USA, the IRS offers several different forms of tax debt forgiveness, one of which is referred to as the IRS one time forgiveness program.


Does the IRS Believe in Second Chances?

The IRS affords taxpayers some form of a second chance depending on the circumstances. However, it’s essential to understand that debt relief is not quite all-encompassing. If you do owe the IRS money – that is to say, if your debt is the result of a mistake on your tax returns or unannounced income – then your debt forgiveness will be limited to penalty abatement, especially if it is your first time being written up by the IRS. This means that the IRS may reduce your debt to the amount owed minus applied penalties for late or missing returns, especially if your circumstances support your delays, such as personal tragedy or financial distress.

On the other hand, the IRS may erase your tax debt if you can point out that you don’t owe money to the government, to begin with. While many IRS systems are automated, humans ultimately make final decisions. Data can be misinterpreted; mistakes can be made. Proving your innocence can wipe your tax debt, primarily if you work with a tax professional to go through the proper channels. Let’s explore the different circumstances under which the IRS might let you catch a break – and how to utilize them.


IRS One Time Forgiveness

There are no official IRS documents discussing the one time forgiveness program. Instead, it’s a concept gleaned from changes in the IRS’s policy regarding tax debts following the implementation of the Fresh Start Initiative. Furthermore, the IRS has offered First Time Abatement for tax debt penalties and tax return penalties since 2001. The First Time Abate function allows for administrative relief of the failure to file a correction and pay a fine.

Failure to deposit penalty provided the taxpayer has qualified for penalty abatement and has not received any penalties or has not had any problems with the IRS within at least the last three years (as per a manual look back through your records). Penalty abatement does not eliminate your tax debt. Instead, it stops additional penalties added onto your debt, which are often levied on a percentage basis, using your debt as principal. First Time Abatement is only available if you:

  • Have a reasonable cause for why you missed your deadlines on filing your return/solving your tax liability. 
  • Have you filed your missing returns or filed valid extensions for them? 
  • Have paid or have already arranged to pay any tax currently due (through a payment plan, for example).

For more information on penalty relief, check out the IRS’s advice here.


The Fresh Start Initiative

The Fresh Start Initiative invokes several changes in how the IRS deals with tax debt and taxpayers. But, the Fresh Start Initiative reduces the qualifications and requirements associated with the offer in compromise, one of the options taxpayers have for lowering your overall tax debt. The Fresh Start Initiative was launched in 2008 and expanded in 2012. Among other things, the Fresh Start Initiative broadens the definition of allowable living expenses. It aims to help taxpayers struggling with tax debt on top of other joint debts, such as student loans.


Additional Tax Relief Options

Debt forgiveness is a big topic of discussion for taxpayers struggling to pay off their debt to the IRS. While the IRS will not eliminate your debt without cause, they do offer a few different ways to reduce what you owe. Eliminating your penalties can go a long way towards slashing your debt total. Further, making an offer in compromise can help you and the IRS settle on a realistic number that you can afford to work towards in the next few years.

Settling on a payment plan with the IRS can spare you further hardship and reduce your interest rate. Finally, contacting the IRS when experiencing financial difficulty can net you a temporary release on all collection efforts and give you time to rebuild your finances before tackling your debt. Let’s explore some of these options.

  • Installment Agreements: Also known as a payment plan, choosing to pay off your debt in installments rather than all at once allows you to break your tax bill up into multiple monthly transfers. Agreeing with the IRS can also help reduce the rate at which your debt grows.
  • An Offer in Compromise: This is an offer you or your legal representative must draft up and send to the IRS to be deliberated and accepted. A solid proposal reflecting your current financial capabilities will allow you to reduce your tax debt, sometimes by multiple tens of thousands. But an unrealistic offer is likely to get thrown out, costing you precious time.
  • Currently Not Collectible: When all else fails, and you face imminent financial hardship, you can temporarily halt any collection activity until your finances rebuild.
  • Innocent Spouse Relief: If your tax debt results from something your partner did without your knowledge, you may be able to argue for innocent spouse relief through a tax professional.


A Forgiving Revenue Service

When it comes to tax debt, you may have not just one but multiple different chances to reduce your debt and reach an amicable agreement with the IRS. But it’s important to understand your opportunities for abatement and debt reduction and how to approach them. At Rush Tax Resolution, we can help you deal with your debt the right way. No tricks, no shortcuts, no trouble with the IRS. There are many ways to deal with the taxman and save yourself a lot of unnecessary hardship. Contact us today for a free consultation.