An Overview of IRS Tax Relief Programs

Tax relief programs are offered by the IRS to help injured taxpayers who are unable to pay taxes due to financial difficulty. These are more than just ways to save on tax, they are processes in which manageable debt can be worked through and succeeded with. The IRS understands that life happens — unemployment, medical emergencies, economic downturns, and other difficult situations may arise and make it impossible for a taxpayer to pay their taxes in full.

IRS Tax Relief Programs: Different Types

The IRS has different forms of tax relief depending on the situation. Below are several of the more high-profile programs:

Offer in Compromise (OIC): If a taxpayer can show that paying the full amount of tax debt would be too much of a financial hardship, this program enables them to settle their debt for less than the full amount. The OIC program is accessible to those who qualify1, and this is illustrated by the fact that the IRS accepted about 15,154 OICs in 2022.

Installment Agreements: If the taxpayer cannot pay their tax debt in a single sum, they may qualify for an Installment agreement that allows the taxpayer to pay monthly over time. Installment agreements are widely used and effective: as of 2023, over 2.8 million taxpayers are enrolled in them2.

Currently Not Collectible (CNC) Status: The IRS will place a taxpayer account in CNC status if even the smallest payment would leave them unable to meet minimum living expenses. This designation does not eliminate tax debt, but does freeze collection action.

Penalty Abatement: If a taxpayer has a reasonable cause for the failure to file or pay a tax obligation, (such as a natural disaster or serious illness), the IRS may remove penalties. One program that allows for the forgiveness of penalties to qualifying taxpayers with a spotless compliance history3 is the First-Time Penalty Abatement (FTA).

How to qualify and the Apply Process

Many of these programs have different qualification requirements, and nearly always require an in-depth evaluation of a taxpayer's financial position. For example, the Offer in Compromise requires extensive financial documentation to demonstrate that full payment of the tax debt would cause undue hardship. Likewise, for an installment agreement, the IRS looks at what the taxpayer can afford to pay over a period of time.

There are different forms that required for each program when applying for it. As an example Form 656 is for an Offer in Compromise and Form 9465 is for setting up an installment agreement. It is important to accurately and adequately supply information to avoid delays or declines.

Usefulness and Advantages in Action

These programs can offer significant financial aid. However, if a taxpayer has a $50,000 tax liability and qualifies for an OIC, they could end up only paying $20,000, thus reducing their financial obligation o such a large amount. In addition, payment arrangements allow one to manage cash flow in a way that they can pay taxes and not have to sacrifice money on needs.

The benefits go further than just the immediacy of the cash. Completing well in these programs can, at the same time, help avoid stronger measures such as tax liens or levies, that wield a more direct impact on credit as well as overall financial wellness. In addition, most taxpayers feel relieved that it has been taken care of and that it clears their slate with the IRS and they can move forward with planning their finances.

Key Considerations

These programs have a lot of upsides but also come with some considerations. Taxpayers need to be reminded that if the debt is not paid, the unpaid taxes will continue to accrue interest, increasing the amount owed. Moreover, not every application is approved, and the IRS might need extensive evidence confirming claims of financial hardship.

Having someone with experience in the application process can be immensely helpful. Getting professional insights from either a tax expert or IRS-approved organization can help ensure that your application has a better chance of being approved.

Final Thoughts

IRS tax relief programs are the only aspects of a tax, short of the refund, that act like a life preserver if you cannot float fiscally. With the knowledge of these programs, you can allow your financial situation to become one that can lead to success and stability, just without the stress that typically comes with having tax debt. Given changes in economic conditions, it can be vital to know of these opportunities to better manage your finances.

References

• IRS Statistics on Offer in Compromise
• IRS Payment Plans and Installment Agreements
• IRS Penalty Relief Information