In the following paragraphs, I will explain the 3 key factors that make the IRS to implement tax debt forgiveness programs and then I’ll describe a little bit about what those programs actually are.
What could make the IRS to forgive your tax bad debts?
Statute of Limitations on the Time to Collect IRS Debt: Did you know normally, there's a time clock running on the Internal Revenue Service to collect back taxes from you? This system can appear great for long suffering taxpayers. Generally, if the federal government is only able to get X amount of dollars from you over the next decade or so, what if you offered X $1 to settle your back tax debt? Is that a great deal for the federal government? Is this a good deal for you personally? Yeah, it could be.
Reasonable Collection Potential: You owe thousands of dollars to the IRS but what if you obviously don’t have the assets or income to repay the tax owed in a reasonable time? That's where the Reasonable Collection Potential (RCP) comes into the scene. RCP is the realistic amount of money the IRS thinks they could obtain from you for the pending tax debts. If you're completely broke, your RCP is $0 and paying out just $1 perhaps a good deal to the IRS. But negotiating for "pennies for the dollar" is not that likely to happen since most people aren't without any cash. However, it is yet another situation where your tax debts will be forgiven by the IRS.
”Fresh Start”: Under specific situations, Chapter 7 bankruptcy could stop all the IRS collection efforts and also fully eliminate personal tax debts. This means, the IRS will get ZERO DOLLARS, even when you owe millions of dollars in back taxes. Your debts forgiven and a "fresh start" granted - allowing to begin a new life free of IRS liens and levies.
IRS Debt Forgiveness
Now, let’s analyze the three common programs of IRS debt forgiveness currently available.
Partial Payment Agreement
This is another tax debt reduction plan that you can qualify when your RCP is too high to obtain CNC status. In this particular plan, you pay a monthly amount to the IRS that you agreed upon. Similar to CNC, the collection clock carries on to tick for PPIA also; you have to pay until the statute expires. Right after that period of time, regardless of what the balance amount that you've not settled would be permanently forgiven.
Currently Non-Collectable Status
In case your RCP is extremely low because your earnings or household cash flow matches the government "Allowed expenses" and if you don't have any assets to sell, you might be able to be eligible for CNC Status. All IRS collection efforts against you would cease plus your salary and bank account will be protected against IRS seizure. Contrary to OIC or bankruptcy that put collection statute on hold, the clock will continue to run while you are listed as non-collectible. If you have just few years left, you can actually run out the clock on the Internal Revenue Service. This means you will pay the IRS nothing for your back taxes.
Doubt As To Collectability - IRS Offer in Compromise
There's quite a few type of Offers in Compromise available with the IRS, but they are a kind of a different beast. I just want to discuss this one type of Offer in Compromise - the Doubt as to Collectibility - the commonest type of IRS tax forgiveness program we make use of to settle our clients’ tax debts for far less than what is actually owed. ) It's the way the IRS forgives your taxes owed - any amounts due to the IRS.
The Internal Revenue Service has understood that the struggling taxpayers will never settle their back taxes when there is no hope. So they finally figured out that this would be on their best interest to forgive your tax debt for less than the amount you owe. You see, the IRS forgive debts not due to kindness towards you. The key is to align the government best interests, with yours.