Tax Debt Forgiveness

The IRS can Forgive Tax Debt using various tax settlement methods.

Four common methods for tax debt forgiveness:

  1. Offer in Compromise
  2. Abatement of Penalties and Interest
  3. Hardship or “Currently Non-Collectible” status
  4. Bankruptcy

Let’s examine the 4 Tax Debt Settlement methods:

1 – Offer in Compromise

Offer in CompromiseAn Offer In Compromise allows the taxpayer to settle his or her tax debt for less than the full amount owed. The IRS considers an OIC to be a legitimate option if the taxpayer cannot pay their full tax liability, or doing so creates a financial hardship. The IRS will consider a taxpayer’s unique set of facts and circumstances:

  • Ability to pay;
  • Income;
  • Expenses; and
  • Asset equity.

The Offer in Compromise is the most well-know program and is often referred to in radio and TV commercials as the “pennies on a dollar” IRS settlement program. The IRS accepts approximately 30% of all submitted offers in compromise. The process involved to get an offer in compromise accepted by the IRS can be somewhat lengthy. It would be advisable to consult with a Tax Resolution Lawyer to see if your specific circumstances qualify for an Offer in Compromise before venturing down that path.

2 – Abatement of Penalties and Interest

Many IRS Penalties can be abated or removed. Each taxpayer’s case if completely dependent upon its own unique set of circumstances.

The purpose of IRS penalties

IRS Tax penalties are designed for one purpose: to encourage voluntary compliance.

Contrary to public belief, the IRS does have a heart where penalties are concerned. Built into the IRS agent handbook are guidelines for determining reasonable cause that might warrant abating a penalty. They include such things as:

  • A mistake made despite ordinary business care and prudence
  • Forgetfulness
  • Ignorance of the law
  • Death, serious illness or unavoidable absence
  • Inability to obtain records
  • Inability to obtain tax forms
  • Return was filed at the wrong IRS office
  • Followed advice from a tax adviser
  • Followed oral advice from the IRS
  • IRS error

3 – Hardship – “Currently Non-Collectible” status

If you owe IRS taxes but are either unemployed or underemployed and cannot make a payment, you can request what is referred to as “uncollectible status.” This is the process the IRS uses to freeze the collection account. The IRS will cease any attempts to enforce collection in order to give you time to get back on your feet financially.

While it will not be a permanent solution to ones tax problem, it does help greatly by stopping collection harassment, bank levies, wage levies, and property seizures. In order to apply for “uncollectible status,” the taxpayer will need to file a financial statement on Form 433A for individuals, and Form 433B for businesses. These financial statements are to convince the IRS that all the money you earn is needed to provide for necessary living expenses for you and your family. Uncollectible status, if approved, would help you to stay afloat until you are able to pay the tax or apply for complete “Tax Forgiveness” under another IRS program.

4 – Bankruptcy

It is a common misunderstanding that filing bankruptcy cannot eliminate an individual’s tax liability. To the contrary, the Bankruptcy Code does offer many debtors substantial income tax relief through the federal bankruptcy process. Whether or not your particular bankruptcy filing relieves your tax debt depends on several factors including the nature of tax liability and the type of bankruptcy proceeding —typically either Chapter 13 or Chapter 7.

Chapter 13 Bankruptcy – Repayment Plan

A Chapter 13 bankruptcy allows a taxpayer to enter into an agreement to pay back taxes in accordance with his or her ability to make monthly payments. When certain rules are met, whatever cannot be reasonably paid back within Bankruptcies’ maximum 60-months maximum might be discharged.

The IRS has recently revised its Offer in Compromise program to make that program a more attractive procedure than filing bankruptcy and the IRS claims that the changes to the OIC process has changed the minds of thousands who were considering filing bankruptcy. A Tax Resolution Lawyer at Vincent W. Davis and Associates will be able to advise you as to the benefits and drawbacks to all tax and/or bankruptcy options so that you can make an informed choice.

Exploring Bankruptcy Option can help make a stronger case for a more favorable Offer In Compromise
Additionally, should you qualify to discharge some or all of your tax debt through bankruptcy, informing the IRS that you are considering that option when filing for an Offer In Compromise will give more power to your OIC submittal with a greater likelihood for approval. Our tax debt forgiveness lawyers are prepared show the IRS that they will collect more by accepting your Offer In Compromise than they will by forcing you into bankruptcy.

Chapter 7 – Some Taxes Totally Discharged for a “Fresh Start”

The federal process of filing a Chapter 7 bankruptcy allows for certain taxes to be discharged entirely and provide the taxpayer with a true “fresh start.” For some taxpayers, a Chapter 7 bankruptcy is the best and fastest way to eliminate tax debt entirely while creating a fresh start —a do over— where you will be set free from IRS liens and levies. When a Chapter 7 bankruptcy is properly filed, the IRS must forgive your tax debt which will truly permit you to get a fresh start.

Chapter 7 – Some Taxes Totally Discharged for a Fresh Start
Exploring the possibility of obtaining a fresh start through a filing Chapter 7 bankruptcy may prevent you from having to file one in the first place. By determining that you are an excellent candidate to file a Chapter 7 bankruptcy, the tax resolution lawyers at Vincent W. Davis and Associates can use that to petition the IRS for non collectible status for a period of time. Later on, when your life situation improves, you could then make an Offer in Compromise. By demonstrating to the IRS that you are a perfect candidate to file a Chapter 7 bankruptcy might sufficiently persuade the IRS the perfect motivation to allow you more time to get yourself more financially recovered. Many financial experts counsel people to treat bankruptcy as a last chance solution to settle your consumer debt and tax debt, therefore using the treat of filing might get some leniency from the IRS where you won’t have to use the bankruptcy option.

Criteria necessary to Discharge Tax Debt through Bankruptcy

You can discharge tax debt, and receive real tax debt forgiveness, for federal income taxes
in Chapter 7 bankruptcy only if all of the following conditions are true:
  • The taxes to be discharged are income taxes. Taxes other than income tax, such as payroll taxes cannot be forgiven through bankruptcy.
  • You did not commit fraud or willful evasion. If you filed a fraudulent tax return; if you attempted to evade paying taxes (for example: if you used a false Social Security number on your tax return) bankruptcy will not forgive your tax debt.
  • Some or all of your tax debt must be at least 3-years old to qualify. The tax return(s) and debt must have been originally due at least 3-years before you file for bankruptcy.

Contact one of our Tax Resolution Lawyers to inquire about Tax Debt Forgiveness

Call the Tax Resolution Lawyers at Vincent W. Davis & Associates today to see if you can qualify for one or more Tax Debt Forgiveness programs offered by the IRS and many state tax agencies. We will discuss with you all your options including the IRS Offer in Compromise, possible penalty and interest abatement, petitioning for non collectible status, or bankruptcy options that some will choose to get a fresh start.

Get some help —Make that call!

The Tax Resolution Lawyers at Vincent W. Davis & Associates, provide a no-obligation, confidential consultation and have appointments available for evenings and weekends. Moreover, we accept all major credit cards and can make other payment arrangements so that we can help you get your tax problems straightened out without adding additional layers of financial burden on you and your family. We have seven convenient offices throughout Southern California, including Los Angeles County, Orange County, Riverside County and San Bernardino County. To schedule a confidential consultation with one of our Tax Resolution Lawyers, call 626-446-6442.

Arcadia Office
150 N. Santa Anita Ave,
Suite 200
Arcadia, CA 91006
Phone: (626) 446-6442
Fax: (626)-446-6454

Beverly Hills Office
9465 Wilshire Blvd.
Suite 300
Beverly Hills, CA 90212
Phone: (310)-880-5733

La Mirada Office
Cerritos Towne Center
17777 Center Court Drive ,
Suite 600
Cerritos, California, 90703
Phone: 888-888-6542

Los Angeles Office
Gas Company Tower
555 West Fifth Street,
31st Floor
Los Angeles, California, 90013
Phone: (213)-400-4132

Long Beach Office
Landmark Square
111 West Ocean Blvd.,
Suite 400
Long beach, California, 90802

Irvine Office
Oracle Tower
17901 Von Karman Avenue,
Suite 600
Irvine, California, 92614
Phone: (949)-203-3971
Fax: (949)-203-3972

Ontario Office
Lakeshore Center
3281 E. Guasti Road,
7th Floor
City of Ontario, California, 91761

Riverside Office
Turner Riverwalk
11801 Pierce Street,
Suite 200
Riverside, California, 92505
Phone: (909)-996-5644

San Diego
Emerald Plaza
402 West Broadway,
Suite #400
San Diego, California, 92101
Phone: (619)-885-2070

Aliso Viejo
Ladera Corporate Terrace
999 Corporate Drive,
Suite 100
Ladera Ranch, California, 92694
Phone: (714) 721-3822