Is There Really a One-Time Tax Forgiveness Program From the IRS?

Is there really an IRS one-time forgiveness program? Well, kind of. The IRS will often waive penalties for first-time offenders, and in some cases, you may even be able to get some of your tax bill forgiven through an offer in compromise settlement. However, the IRS doesn’t have an actual program with this name. Instead, it’s a phrase used heavily by big tax relief firms for marketing purposes. 

Eligibility for penalty waivers and settlement offers varies based on your situation, and this guide can help you determine if you’re likely to qualify. Want to get professional help now? Contact us today at the W Tax Group. 

Key Takeaways

• One-time forgiveness is a misleading phrase but may refer to penalty abatement or other tax relief options.
• First-time penalty abatement is when the IRS agrees to reduce or waive a tax penalty because you have a history of good tax compliance.
• You can potentially save thousands of dollars in penalties if you pursue penalty abatement options.
• Actual tax forgiveness options may include an offer in compromise, partial payment installment agreement, or currently not collectible status.
• A standard IRS payment plan won’t forgive your debt, but it will allow you to pay off your balance over time.
• Get help with penalty abatement or tax relief applications from the team of legal experts at W Tax Group.

What Is IRS One-Time Forgiveness?

IRS one-time forgiveness is a phrase commonly used by tax resolution companies to advertise penalty abatement and tax settlement programs. The IRS doesn’t have any programs called “one-time forgiveness.” There isn’t a program you can apply for that will waive your tax bill. Instead, it’s simply a phrase used as a marketing hook. 

Tax debt relief companies frequently use this phrase in their radio and TV commercials, and they make it sound like a limited time program. For example, “Call us today to get one-time forgiveness in 2024 while it’s still available.” In actuality, if you call a tax debt relief company and ask about one-time IRS forgiveness, they’ll help you apply for penalty relief or a tax settlement. 

In contrast, you can’t call the IRS and ask for one-time forgiveness, as it doesn’t really exist. However, several IRS programs fall under this umbrella of tax relief, which are covered in detail below.

IRS Penalty Forgiveness

IRS penalty waivers fall into three different categories. Here’s an overview and information on who qualifies:

First-Time Penalty Abatement

The IRS will generally waive penalties for first-time offenders. This is called first-time penalty abatement, and to qualify, you must have a history of being compliant with tax filing and payment requirements. This means you have filed the same type of return on time for the last three years and did not incur penalties during that period, or any penalty was waived for a reason other than first-time penalty abatement.

Reasonable Cause

You can also get penalties waived if you have reasonable cause. This applies if situations outside your control caused you to pay or file late. Qualifying reasons include deaths, illnesses, natural disasters, or system issues. 

The IRS reviews reasonable cause requests on a case-by-case basis. However, the IRS usually won’t remove penalties if you incurred the penalty due to poor advice from a tax pro, lack of knowledge, mistakes, or an inability to pay. 

Administrative or Statutory Waivers

There are also administrative or statutory penalty waivers. Statutory waivers may apply when you mailed a return on time but it was received late, or if you incurred a penalty due to erroneous written advice from the IRS. Administrative waivers generally come into play when the IRS waives penalties because it released a tax form or published guidance late. 

How to Apply for Penalty Forgiveness

If you are working with an IRS agent, you can request penalty forgiveness over the phone. Otherwise, write a letter to the IRS explaining why you want penalty forgiveness, or file Form 843 (Claim for Refund and Request for Abatement). If you’re applying based on reasonable cause, submit documents that prove your situation along with your request. 

How Much Can You Save With IRS Penalty Forgiveness?

The exact amount you can save through penalty abatement will depend on your situation and how many penalties you’ve incurred on your account. Most IRS penalties are calculated as a percentage of your tax liability — they can range from anywhere from 0.5% to 100% of your bill. By extension, the savings can be significant, and the more you owe, the more you are likely to save.

Here’s an example: Imagine you file your tax return a year late and you owe $10,000. You will be hit with the failure-to-file penalty, which is 5% of your unpaid taxes each month the return is late, and the failure-to-pay penalty, which is 0.5% of the unpaid taxes each month until they’re paid off. Both penalties max out at 25% of your balance, so you could see a penalty of up to 50% of your balance.

This means you’ll have at least a few thousand to pay in penalties, plus any accumulated interest. Penalty abatement lowers your bill back down to your original balance of $10,000.You will still have to pay interest that was assessed on your tax due, but the interest that was related to your penalties will be automatically removed or reduced if your penalties are removed or reduced.

One-Time IRS Tax Forgiveness

In some cases, the IRS may forgive some of your tax liability, not just penalties. IRS payment forgiveness is much rarer than penalty abatement, and you must be able to prove that you cannot pay the full tax bill or that it would create financial hardship. Here are the main tax relief options:

• Offer in compromise — The IRS lets you settle your tax bill for less than you owe. You can apply based on inability to pay, doubt as to liability, or inequitable tax administration. The rules are different for each option, and for best results, you should work with a tax professional. 
• Partial payment installment agreement — The IRS lets you make payments until the collection statute expires. Then, it waives the rest of the balance. If your financial situation changes, the IRS can rescind this agreement and demand payment in full. 
• Currently not collectible — This is an account status, not an IRS forgiveness program, but it can work to eliminate taxes in some situations. If you qualify, the IRS will stop collection on your account. If you cannot afford to pay, the debt may eventually expire after 10 years from when the tax was assessed.

To qualify for these tax relief programs, you need to show the IRS that you are experiencing a financial hardship or have reasonable cause for failing to comply with tax requirements.

Generally, you can only get relief from these programs if you have a history of tax compliance. You also need to stay compliant or you may lose your eligibility. For instance, if the IRS lets you settle through an offer in compromise, the agency can rescind the agreement and demand payment in full if you miss a filing deadline anytime in the next five years. 

How to Apply for Tax Debt Forgiveness

To apply for these programs, you must submit documents through the mail to the IRS, including any relevant tax forms, such as Form 433-A (OIC) for an offer in compromise, along with an application fee. You also need to submit detailed information about your financial situation, including copies of wage documents, bank statements, information about loans, and potentially even appraisals of your assets. Talk to a tax attorney when you’re ready to apply.

How Much Can You Save With IRS Forgiveness?

How much you can save through the IRS’s tax elimination programs will vary based on your balance, tax history, and financial situation.

Note, however, that the IRS commonly rejects offer-in-compromise applications. If you want to increase your chances of getting approved, work with a tax attorney. They know what the IRS wants to see on your application, and they can also be an invaluable resource when dealing with the subjective aspects of the application. 

Generally, the IRS will only accept a settlement offer if it represents the most that you can afford to pay. This is known as the reasonable collection potential, which is the value that the IRS could get from your assets, such as bank accounts and property. The IRS also considers your estimated future income.

Will the IRS Forgive Taxes You Incurred Due to Your Spouse?

The IRS won’t forgive these taxes, but you may be able to get relief from your spouse or former spouse’s portion of the tax bill in certain situations. In particular, if your ex-spouse or late spouse has unreported income or overstated income that you didn’t know about, the IRS may be willing to separate your tax liabilities through its innocent spouse program. Thus, you will only owe your portion of the bill, and they will owe theirs. 

However, to qualify, you also must prove that you had no reason to know about the tax bill. The IRS will consider your education, involvement in household finances, and any financial benefit you may have received due to the situation. The agency will also consider innocent spouse relief if you were forced to sign a tax return by an abusive apouse. 

Applying for a Payment Plan

You also have the option to apply for a payment plan if you can’t afford to pay your tax balance in full. Although this doesn’t forgive your taxes, it will help you avoid tax penalties from the start. 

If you file your tax return on time and can’t afford to pay off your full balance right away, ask for an installment agreement. You can usually apply online in just a few steps. This will give you extra time to pay off your balance and stay in good standing with the IRS in the meantime, helping you avoid costly penalties. 

Talk to a tax expert about setting up a payment plan if it’s your first time requesting relief.

Get Expert Help With IRS One-Time Forgiveness

So, is there a tax forgiveness program? Not exactly, but you do have relief options if you qualify and are struggling to pay your balance. The IRS may also agree to waive a penalty in certain cases.

The W Tax Group is here to provide assistance with tax resolution. Eligibility for tax forgiveness varies based on your situation, but we may be able to help you eliminate penalties or potentially even reduce your tax bill. 

To learn more, contact us at the W Tax Group. We’ll start with a free consultation and can help you find the best solutions that meet your needs.