What Are The Top 4 IRS Tax Forgiveness Programs in 2020?

Anna Kuehl
Expert Contributor
Last Updated:
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It can happen to anyone. You do your best to file your tax returns on time and pay what you owe, but you just can’t keep up with your tax bills. Whether your back tax has grown over time or a major life event has impacted your finances, it might seem like you’ll never be able to pay your IRS back taxes.

No matter what kind of tax issues you’re dealing with, you could be eligible for tax forgiveness. If you’re wondering what the IRS tax forgiveness program is, we’ve got you covered. We’ll walk you through your options and help you understand the steps to take to tackle your back taxes. Find out how IRS tax forgiveness works and learn more about your options for handling your IRS back taxes.

How Does IRS Back Tax Forgiveness Work?

The IRS understands that sometimes it simply isn’t possible to pay your back taxes. Whether you’ve become unemployed unexpectedly or you’ve been affected by unavoidable financial issues, your personal circumstances might prevent you from paying your back taxes for months or years. That’s why the IRS launched their IRS Debt Forgiveness programs to help you deal with overdue back taxes.

Dangers of Unpaid Back Taxes

If you have back taxes that you can’t pay and you don’t pursue tax forgiveness, you could put your family’s finances and even your property at serious risk. When you have unpaid back taxes, the IRS can use one or more of the following methods to collect what you owe:

  • Tax Lien: The IRS can file a legal claim against your property when you fail to pay what you owe. When the IRS issues a tax lien against you, it affects all of your property in addition to any other assets you acquire while the lien is in place. You may not be able to get additional credit while the tax lien is in place, which can have even more wide-ranging effects on your finances.
  • Tax Levy: Although a tax levy sounds similar to a tax lien, it’s a much more serious and immediate solution. When the IRS issues a tax levy, the government can begin seizing your assets immediately. A tax levy gives the government permission to take physical property, such as your home or your car, and financial assets, such as your bank account or your retirement savings. Although you may be able to have a tax levy removed if you can prove that it’s causing serious financial hardship, the IRS may require you to take other actions to repay your debt.
  • Wage Garnishment: Also known as a wage levy, this consequence is a type of tax levy. Essentially, wage garnishment allows the IRS to deduct a certain amount or percentage from your paycheck. In most cases, the government has to leave enough for you to pay your minimum living expenses, but it can apply the rest to your back taxes. The IRS can continue to collect from your paycheck until you’ve paid back your tax bill or made other arrangements to pay your debt.

What Is Tax Forgiveness?

Tax forgiveness doesn’t get rid of your debt completely. Instead, the tax forgiveness programs assess how much you can reasonably pay given your income and expenses. Then the program settles your debt for less than what you owe and eliminates the rest of your back taxes.

What Are The Top 4 IRS Tax Forgiveness Programs in 2020?

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One IRS tax forgiveness program, also known as an offer in compromise, comes with a long list of benefits. Some of the biggest perks include:

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  • You won’t receive additional IRS collection notices reminding you about your back taxes.
  • You won’t continue to accrue penalties or interest once enrolled
  • You won’t be subject to IRS collection methods like wage garnishment, tax liens, or tax levies.

How to Get IRS Debt Settlement with an Offer in Compromise

If the IRS doesn’t think it can collect the full amount that you owe, the government may be willing to agree to an offer in compromise. This IRS debt settlement program is the best option for those who are unable to pay their outstanding debt.

Who Is Eligible for an Offer in Compromise?

Not everyone qualifies for an offer in compromise. To be eligible, you generally need to have filed all outstanding tax returns and have paid any estimated tax payments for the current year. The IRS may disqualify you if you’re in the middle of filing for bankruptcy or in the midst of an audit. Use our offer in compromise calculator to determine whether you qualify for this program.

Just because you qualify to submit an offer in compromise doesn’t mean the IRS will accept your offer. When you submit an offer, the government considers your individual case, including your income, your expenses, and the value of your assets.

How to Submit an Offer in Compromise

If you’re eligible for an offer in compromise, you can send your submission to the IRS. Include the following:

  • IRS Form 656, which is the standard form for an offer in compromise
  • IRS Form 433-A for individual taxpayers or Form 433-B for businesses, including all requested documentation
  • Nonrefundable application fee of $186
  • Nonrefundable initial payment, as specified on Form 656

If you meet the federal government’s low income certification guidelines, you only have to send in the two forms with required documentation. You don’t have to submit the application fee or the initial payment.

How to Select a Payment Option

When you submit your offer in compromise, you have to choose a payment option. You can choose from the following methods:

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  • Lump Sum: Start by paying 20% of the total offer amount, and then pay the remaining balance in five or fewer payments.
  • Periodic Payment: Send an initial payment, and pay the rest in monthly installments until you’ve paid your back taxes in full.

What Happens While Your Offer Is Under Consideration

The IRS doesn’t always process offers in compromise quickly. In fact, you might not receive a response for over a year. If the IRS doesn’t officially accept or reject your offer within two years of receiving your submission, your offer in compromise is automatically accepted on the terms you proposed.

However, while the IRS is evaluating your offer, there are a few things you should know:

  • You do have to make the payments you proposed in your offer in compromise unless you meet low income certification guidelines.
  • The IRS will apply the payments you make toward your outstanding back taxes, but you can specify which debt each payment should go toward.
  • You don’t have to continue making payments on installment agreements.
  • The statute of limitations for collecting your debt is extended.
  • The IRS can file a tax lien, but it has to stop all other collection activities.

What to Do If Your Offer Is Accepted

If the IRS accepts your offer in compromise, you’re required to meet all of the offer terms outlined in Form 656. This requirement includes filing tax returns in a timely manner and making payments as described in your offer. If you are owed any tax refunds during the calendar year when your offer in compromise is accepted, the IRS will automatically apply them to your outstanding debt.

In the event that the IRS has already filed a tax lien on your property, an offer in compromise won’t remove it. Instead, you’ll have to wait until you satisfy the offer in compromise terms and pay off your debt before the IRS will release your tax lien.

What to Do If Your Offer Is Rejected

It’s possible that the IRS will reject your offer in compromise, especially if the government thinks it can collect more money than you proposed in a reasonable amount of time. However, just because you received a rejection doesn’t mean you have to give up and pay the full amount.

Instead, you can file an appeal requesting the IRS to reconsider your offer in compromise. You have 30 days from the rejection to file IRS Form 13711 and appeal the IRS’s decision.

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What Is the IRS Fresh Start Program?

If you’re struggling to pay your tax bill but you don’t qualify for an offer in compromise, you may still have viable options for dealing with debt. A few years ago, the IRS introduced its Fresh Start Program, which allows taxpayers to handle back taxes without going bankrupt or incurring additional adverse actions. This streamlined program includes three options that enable you to pay off your back taxes in six years or less:

  • Offer in compromise
  • Installment agreement
  • Tax lien withdrawal

How Does the Fresh Start Program Affect Offers in Compromise?

The IRS has long accepted offers in compromise from taxpayers who want to settle their debt. However, the Fresh Start Program initiative expanded the program and gave the IRS more flexibility when determining whether a taxpayer can pay back taxes.

Before the Fresh Start Initiative, the IRS simply multiplied the monthly discretionary income that you reported by 60 to determine how much the government could collect from you over five years. Today, the IRS multiplies your monthly discretionary income by 12 or 24. That means the government expects to be able to collect much less, which increases your chance of submitting a successful offer in compromise.

What Is an IRS Installment Agreement?

When you can’t pay your entire tax bill at once, you may qualify for a payment plan. Thanks to the Fresh Start Program, the eligibility requirements now include a much larger group of taxpayers. You could qualify for an IRS payment plan if you meet one of these simple requirements:

  • You owe $50,000 or less in taxes, penalties, and interest and you’ve filed all outstanding tax returns. In this case, you can apply for a long-term payment plan that fulfills your entire balance in 72 or fewer monthly installments.
  • You owe less than $100,000 in taxes, penalties, and interest. In this case, you can apply for a short-term payment plan that pays your debt within 120 days.

Applying for a payment plan is relatively easy, and you can submit all information and documentation using the IRS online payment plan tool. You’ll need the following information when you apply:

  • Your name, as it appears on your most recent tax return
  • Your address, as it appears on your most recent tax return
  • Your current email address
  • Your date of birth
  • Your Social Security number or Individual Tax ID Number
  • Your filing status
  • Your bank account number, a cell phone registered to you, or an activation code

Although short-term payment plans don’t have a setup fee, long-term payment plans do. You can expect to pay a $31 setup fee if you apply for a direct debit installment agreement or $149 if your payment plan doesn’t include direct debit. While an IRS payment plan still requires you to pay your full balance, this option offers substantial benefits if you’re struggling with debt:

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  • You get more time to pay your taxes, so you don’t have to worry how you’re going to juggle substantial tax payments on top of your regular monthly bills.
  • The IRS may reduce future failure to pay penalties when you enter into an installment agreement. Since these penalties typically accumulate every month, a payment plan can help you save a significant sum over time.
  • The IRS won’t pursue additional collection activities like issuing a tax lien on your property.

What Is an IRS Tax Lien Withdrawal?

If you don’t pay your taxes on time, the IRS can issue a tax lien, which lays claim to your property, even if you file for bankruptcy. Before the Fresh Start program, the IRS could issue a tax lien against almost any outstanding debt, as long as the government determined that a lien was the most reasonable course of action. Under the Fresh Start program, the IRS can’t file a tax lien unless you owe at least $10,000, making tax liens much less common.

In the event that the IRS does issue a tax lien against your property, it’s much easier to have it withdrawn thanks to the Fresh Start program. In the past, you had to pay your back taxes, file all returns for the past three years, and pay all current estimated payments. Today, you can apply to have the lien released if you meet all of the following requirements:

  • You owe $25,000 or less in back taxes.
  • You enroll in a direct debit installment agreement.
  • Your direct debit installment agreement pays your full tax balance within 60 months of the expiration of your Collection Statute Expiration Date.
  • You have successfully provided three consecutive direct debit payments.
  • You haven’t defaulted on any direct debit installment agreements.
  • You’ve complied with other payment and filing requirements.

What Is IRS Penalty Abatement?

In some cases, the IRS also gives taxpayers a fresh start by offering penalty assistance. If you qualify for one of the three types of penalty assistance, you could have hundreds or thousands of dollars of your tax bill forgiven:

  • First-Time Penalty Abatement: If you haven’t received penalties for the previous three tax years, and if you’ve filed all required returns or extensions and paid all taxes due, you could qualify for first-time penalty abatement. The IRS may also to provide an administrative penalty waiver if the agency provided incorrect oral advice. Contact the IRS at the number provided in the notice to request this type of penalty abatement.
  • Statutory Exception: If the IRS gave you incorrect written advice, you may qualify for a statutory exception that eliminates your penalties. To request this type of assistance, call the IRS directly or submit IRS Form 843.
  • Reasonable Cause: If you experienced unexpected circumstances that prevented you from filing your tax return or paying your taxes, such as a natural disaster or the serious illness of a family member, you could be eligible for a reasonable cause waiver. To discuss this type of penalty assistance with the IRS, call directly and have documentation of your circumstances available.

How Long Does It Take for IRS Back Tax Owed Amount to Expire?

If you’re considering seeking out back tax forgiveness, it’s important to know that your back taxes might not be around forever. In fact, most back taxes expire at some point. Find out what the statute of limitations is for back taxes, and learn when and why the expiration date for your back taxes may change.

What Is the Collection Statute Expiration Date?

The Internal Revenue Code gives the government a standard statute of limitations on collecting taxes. In most cases, the IRS has 10 years to collect your back taxes. The countdown starts on the date you filed your tax return or the date the IRS issued an additional payment notice. Ten years from the original date is the collection statute expiration date.

It’s easy to assume that you can avoid getting a tax bill by failing to file your tax return in the first place. However, that belief isn’t true. The IRS notices when you don’t file a tax return and within a few years, the government usually issues a substitute for return, which prompts a tax assessment. If you never filed a tax return, but you still owe money, the IRS issuing a substitute for return prompts your 10-year statute of limitations to begin.

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What Happens When Back Tax Amount Expires?

When you reach your collection statute expiration date, the IRS can no longer attempt to collect your debt. After that point, the IRS has no legal recourse to pursue collection activities.

If the IRS has placed a tax lien or levy against your property, the government can no longer enforce these methods. That means tax liens and tax levies expire, but they may not fall off automatically. Instead, you may need to contact the IRS to receive written confirmation that you no longer have an outstanding balance. Once you receive confirmation, you can request that the IRS remove any remaining tax liens or levies against your property.

Why Your Statute of Limitations May Change

Although most back taxes expires 10 years from the original collection date, the statute of limitations may change in some situations. If you pursue certain payment plans or tax forgiveness options, such as an offer in compromise or a bankruptcy filing, then your statute of limitations could be much longer than 10 years.

In most cases, the IRS pauses your 10-year countdown while the agency considers your case. For example, if you submit an offer in compromise and the IRS leaves your case pending for a year and a half before rejecting it, then your total statute of limitations becomes 11.5 years from the original collection date.

Finding out exactly when your collection statute expiration date is scheduled can be confusing, especially if you have already filed for bankruptcy or submitted an offer in compromise. For assistance with getting your back taxes waived or pursuing other tax forgiveness strategies, consider working with a back tax assistance firm. Whether you have a straightforward question or a complex case to present, a back tax assistance firm can use its experience to handle your tax matters professionally.

Major Changes to IRS Back Taxes Laws

The IRS updates the U.S. tax law every year. Since some of the changes can impact how much you owe and may even help you save, it’s in your best interest to watch these updates closely. Take a look at some of the biggest tax changes from 2015 to 2019 below.

2015 IRS Tax Law Changes

In 2015, new rules for health care coverage began. If you didn’t have at least the minimum essential health care coverage, you could face a penalty equal to 2% of your income. For your family, the total penalty could be as much as $965, which could increase your overall tax burden significantly.

The rules for some retirement accounts also changed in 2015. Starting in 2015, you could rollover your individual retirement account (IRA) — or remove it from one IRA and hold it for 60 days or less before placing it into another IRA — once per year. The federal government also introduced the my Retirement Account (myRA) to offer taxpayers another option for saving for retirement while enjoying tax savings.

2016 IRS Tax Law Changes

Before 2016, you had to meet a strict 60-day deadline to take advantage of a tax-free rollover of a distribution from an IRA or an employer-sponsored retirement plan to another retirement program. If you missed the 60-day window, you could owe thousands of dollars in additional taxes or you would have to request a special waiver from the IRS.

Since August 24, 2016, however, you can automatically qualify for a waiver if you meet at least one of 11 circumstances, such as the death of a family member or misplacement of your distribution check. That means the IRS forgives retirement account-related taxes much more easily.

2017 IRS Tax Law Changes

If you earned over $200,000, you could face increased taxes. For example, the IRS placed individual taxpayers who made more than $400,000 and joint filers who made more than $450,000 in a new tax bracket. These taxpayer groups also faced increased long-term capital gains taxes of 20%.

In addition, individual taxpayers with an adjusted gross income (AGI) of at least $250,000 and joint filers with an AGI of at least $300,000 received lower per-person personal exemptions and lower itemized deductions. If you met these income requirements in 2017, you could owe more in taxes than you had planned.

2018 IRS Tax Law Changes

In 2018, the IRS eliminated the personal exemption and replaced it with an increased standard deduction. The government also largely eliminated the marriage penalty and expanded the Child Tax Credit for children under 17 years old. In addition, the IRS revamped the rules surrounding 529 college savings plans so that taxpayers can also apply the funds to school expenses related to elementary, junior high, and high school.

The IRS also eliminated several deduction opportunities, including those for tax preparation, moving, and employer-subsidized transportation. If you’d planned to take any of these deductions, your tax bill may be higher than expected.

2019 IRS Tax Law Changes

Before 2019, the IRS had a wide range of tactics for collecting back taxes, including tax liens, bank levies, and wage garnishment. In August 2019, however, the IRS instituted another collection method designed to address taxpayers who have substantial back taxes.

Since August 8, 2019, seriously delinquent taxpayers can have their passports revoked by the government. As of 2019, the IRS considers taxpayers with $52,000 or more in back taxes to be seriously delinquent. If you have substantial debt or if you’re at risk of becoming seriously delinquent, you may lose your ability to travel outside the United States unless you pursue one of the tax forgiveness methods above.

Whether you think you qualify for an offer in compromise or you want to pursue other Fresh Start options, you may be able to handle your IRS back taxes more quickly than you think. If you aren’t ready to tackle the IRS on your own, it’s easy to get help from an expert. Find an experienced back tax assistance firm to help you with tax forgiveness today.

Anna Kuehl
Expert Contributor
Last Updated: