IRS Forgiveness

mariaalvarez422
Aug 16
2 min read

When people talk about "IRS forgiveness," they’re usually referring to programs the IRS offers to reduce or wipe out part of your tax debt if you meet certain conditions—most often through the IRS Fresh Start Program or Offer in Compromise (OIC).

Here’s a breakdown of the main conditions you typically need to meet for IRS debt forgiveness:

1. Be Current on All Filings

You must have filed all required tax returns (even if you can’t pay yet).
You must also be up to date with estimated tax payments (if self-employed) and payroll deposits (if you have employees).

2. Demonstrate Financial Hardship

For an Offer in Compromise, the IRS will only forgive part of your debt if they believe they can’t collect the full amount from you now or in the future.
They use a Reasonable Collection Potential (RCP) formula, factoring in:
- Monthly income
- Necessary living expenses (housing, utilities, food, transportation, etc.)
- Assets you could liquidate (home equity, bank accounts, investments, vehicles)

3. Show No Recent Bankruptcy

You cannot be in an active bankruptcy proceeding when applying for forgiveness.

4. Make Good-Faith Efforts to Pay

For installment agreements, partial payment plans, or an OIC, the IRS expects you to:
- Provide truthful and complete financial disclosure.
- Stick to agreed payments while your application is pending.

5. Qualify Under a Specific Program

The main IRS "forgiveness" routes include:

Offer in Compromise (OIC): Settles your debt for less than the full amount.
Currently Not Collectible (CNC) Status: Temporarily halts collections if you truly can’t pay without causing financial hardship.
Innocent Spouse Relief: Removes your responsibility if the debt came from your spouse/ex-spouse under certain conditions.
Penalty Abatement: Forgives penalties if you have a reasonable cause (illness, natural disaster, etc.) or a clean compliance history.

6. Stay Compliant Going Forward

If the IRS forgives or reduces your debt, you must stay current on all future filings and payments for at least 5 years—otherwise, the forgiveness agreement can be revoked.