The IRS rarely forgives tax debts. Form 656 is the request for a “commitment offer” to settle your tax liability for less than you owe. These offers are only given to people who are experiencing real financial difficulties. This is just one of many procedural changes instituted by the IRS to help struggling taxpayers during this unusual period in our nation's history.
Another recent change, which will survive the pandemic, improves the “start from scratch” option offered by our Offer in Compromise (OIC) program. An OIC allows taxpayers to settle their tax debt for less than the total amount they owe. It may be a legitimate option for taxpayers who can't fully pay their tax obligations or if doing so creates financial difficulties. The closest thing to the forgiveness of the tax debt is the Commitment Offer or the OIC.
Basically, this is a settlement agreement that you established with the IRS. An ICO allows you to pay much less than you actually owe to resolve your tax debt. Under certain circumstances, the IRS will forgive the tax debt after 10 years. However, that 10-year period may be longer than expected, considering extended suspensions, the IRS tax settlement date compared to your last return, and whether or not you've kept up to date with your tax returns since the debt period began.
Acting quickly to pay your tax debt will give you the clean slate you need to achieve your long-term financial goals. Keep in mind that the IRS will only consider you for tax debt relief if you are in good standing with the agency. The tax settlement date is the date you'll find on the document that serves as a Notice of Deficiency and is the date on which the IRS agent who discovered your debt for the first time filed the appropriate form. IRS enforcement measures could include collecting your salary or bank accounts, or even confiscating your property to satisfy your tax debt.
Whenever the IRS cannot currently collect any payments from you, and whenever you contact the IRS and wait for them to deliberate on your offer of a payment plan, or OIC, the 10-year period for paying your tax debt is interrupted. However, the IRS works with taxpayers on an individual basis, so the burden of one person's tax debt could be completely forgiven, while another person could be asked to pay their debt in full. This is because the IRS determined that those families did not need to pay taxes because of their financial situation. It's important to consult your state's tax professionals and find out what your options are for debt relief as soon as possible.
The way it works is that the statute of limitations begins on the date the tax debt is evaluated, also known as the expiration date of the collection statute. It's often called a “fresh start” because taxpayers are often exempt from burdensome penalties, interest payments, and more when seeking real relief from the IRS. The two most powerful weapons available to the IRS to coerce the payment of tax debts that exceed a certain limit are the federal tax levy and, finally, taxes on your accounts, salaries and certain assets. Whether you work with a professional or choose to handle your tax debt on your own, be sure to respond quickly to your letter or notice from the IRS to minimize interest and additional penalties.
Many people who have trouble paying their tax bills would be better off asking the IRS for an installment payment plan. It is highly recommended that you coordinate with tax professionals who have experience helping people negotiate tax debt relief with the IRS, as they can better advise you on when your CSED is likely to receive your history and if you should contact the IRS given your current circumstances and position, or possibly wait for it to happen. .