Radio ads and internet headlines promise that you can get your tax bill reduced. They claim that the IRS writes off millions (maybe even billions) every year, and you might qualify. Is that true? Does the IRS erase tax bills? Can your tax bill be reduced or eliminated?
Maybe, but the situation is complicated. Tax relief companies use these claims as a marketing angle. If they promise to reduce people’s tax bills, they get a lot of customers, but the reality is that having your tax bill reduced is difficult and you generally need to be pretty broke to qualify.
At The W Tax Group, we don’t use smoke and mirrors to attract clients. Instead, we offer real, honest and transparent help. Yes, in some cases, we may be able to help you reduce your tax liability substantially — if you qualify. But in most cases, we help people negotiate other types of favorable arrangements with the IRS.
Want to learn more? Give us a call to talk about your situation or keep reading to learn more about when and why the IRS writes off tax bills.
The Statute of Limitations
Typically, the IRS only has 10 years from the date of assessment to collect a tax. The 10-year period ends on the Collection Statute Expiration Date (CSED). After that date, the IRS can no longer collect on the tax bill.
If a tax liability reaches the CSED without being paid, it basically expires and goes away. This is one way that people can have their tax bills written off by the IRS, but as you can imagine, the IRS doesn’t just let taxes expire. It puts in significant effort to collect the taxes before this happens.
If the IRS believes that you can pay the tax bill, the agency will pursue all of the possible options, including issuing a lien on your assets, seizing your property, garnishing your wages, and taking the funds in your bank account. The IRS has a lot of power. Generally, you cannot just hide until your tax bill expires — the IRS will find you.
Currently Not Collectible or Hardship Status
Some people truly do not have enough money to pay their taxes. The IRS understands this, and the agency isn’t going to waste a lot of time pursuing people who don’t have any money. If you cannot afford to pay your tax liability, you may want to apply for hardship status.
If you qualify, the IRS will label your account as currently not collectible (CNC). CNC status does not make your tax liability go away. Instead, it just stops the IRS from trying to collect your tax bill.
Every year or two, the IRS reviews your case to see if your financial situation has changed. If it has, the agency may require you to start making payments. If you still can’t afford to pay anything, the IRS will keep you on hardship status.
If the hardship status stays intact until the CSED rolls around, the tax bill will expire. This is one situation where the IRS writes off tax bills. But again, you have to qualify.
Collection Financial Standards
To decide if you qualify for hardship status, the IRS uses Collection Financial Standards. This is a standard budget that the IRS uses when looking at people’s financial standards, and it includes allowances for housing, food, transportation, medical care, and other essentials. The IRS has gone very in-depth on these standards, and they vary depending on where you live.
For instance, the IRS understands that the price of housing is more in some areas than in others. Similarly, its standards account for the fact that you will pay more for heat in some areas than others.
However, the standards are not generous at all. You may believe that you cannot afford to pay your tax bill, but if the IRS sees that you’re spending more than the National Financial Standards, the agency will not agree with you.
The standards are relatively realistic for transportation expenses, but the other categories are pretty low. Unfortunately, it seems like the IRS expects you to rent a small apartment and live on ramen noodles or rice and beans. If you’re spending more than that, the agency will generally require you to make some payments.
Negotiating Standards for Hardship Status
The IRS only gives taxpayers a little bit of leeway with these standards. For instance, if you have a serious health problem, the agency will increase your allowance for medical bills.
For the most part, if you are spending more than the standard amount in any expense category, the IRS expects you to reduce that bill and send the extra money to the IRS. A tax attorney can help you negotiate with the IRS, and at the W Tax Group, we have extensive experience negotiating the highest expense allowance possible for our clients.
You don’t have to wait to talk to an attorney. If you like, you can take a look at the Collection Financial Standards on your own and start to determine if you might qualify.
Partial Payment Installment Agreement
If you can only afford to make a small monthly payment, the IRS may be willing to give you a Partial Payment Installment Agreement (PPIA). If you qualify, you make the monthly payment until the CSED. After that date, the remainder of your tax bill expires.
A PPIA is another way that the IRS writes off taxes. Again, however, you have to qualify for this program. The IRS requires you to make a full financial disclosure, and while reviewing your situation, the agency will use the National Financial Standards.
Offer in Compromise
Another way the agency writes off tax liabilities is through the offer in compromise (OIC) program. With the OIC, you make a lump sum payment (or several small payments over a short period of time), and the IRS agrees to erase the rest of the liability.
The OIC program is also difficult to qualify for. You need to make a full financial disclosure, and again, the IRS will use the National Collection Standards when looking at your situation.
If you qualify for an OIC, the situation is not set in stone. Over the next five years, you have to stay compliant with your tax filing and payment obligations. If you don’t meet the criteria, the IRS can say that you have defaulted on your agreement, and the agency can require you to pay the bill in full.
Will the IRS Write Off Your Tax Bill?
The bottom line is that the IRS does write off millions in tax liabilities every year, and as explained above, there are a few different ways this can happen. However, there are strict qualification requirements. If the IRS believes you can pay, the agency will not back down.
At the W Tax Group, we don’t believe in gimmicky sales pitches. Many unscrupulous tax resolution companies tell prospective clients that the IRS will write off their tax bills. Then, they charge a large upfront fee to look at the situation, and often, they end up telling their clients they don’t qualify for these programs.
If you want honest feedback about whether or not the IRS is likely to write off your tax bill, give us a call. We’d love to look at your situation and figure out the best way forward. Again, you might qualify for hardship status, PPIA, or OIC, but if you don’t, we’ll help you negotiate fair and reasonable arrangements with the IRS. To learn more and to talk about your tax concerns, contact us today.