This is because the agency only forgives the tax debt in situations that justify it. With that in mind, the IRS rarely forgives the entire burden of tax debt. They could do that if you're really going through a difficult time financially. The fiscal impact of debt forgiveness or cancellation depends on your individual facts and circumstances.
In general, if you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes. Generally, the lender must inform you and the IRS of the amount of the debt canceled on a Form 1099-C, Cancellation of Debt. There are several exceptions to the taxation of cancelled debt, such as insolvency or bankruptcy. The IRS has the authority to cancel all or part of your tax debt and settle with you for less than you owe.
This is called a commitment offer or OIC. For the evaluation of a tax debt on a tax return that you filed (or on a replacement return that the IRS prepared on your behalf), this is the date on which the IRS recorded the amount of your taxes due and you can find it on your tax transcript. If you're on the wrong side of the IRS, you might be lucky if you qualify for their IRS tax forgiveness program. When your tax debt is currently uncollectible, the IRS will review your situation annually and, if your circumstances don't change, your debt will remain in this state until the statute of limitations expires, at which time the IRS will cancel the remaining balance.
When the ten years pass, the IRS must write off the debt as an uncollectible debt, essentially forgiving it. That fee could be higher than what you would end up saving on your tax bill if the IRS accepts your offer in a transient manner (and it may not be refundable if the IRS rejects your offer). It's best for most people to apply for other options from the IRS, such as IRS payment plans or the “currently uncollectible” category, in which their allowable expenses exceed their monthly income. This type of program was designed as a way for the IRS to maximize the collection of the amount of tax money owed to the government while making it much less difficult for the taxpayer.
Programs like this allow taxpayers who owe back taxes to the IRS or who owe back taxes to the IRS or who have a debt to the IRS to settle for a smaller amount. The time it takes to reach an agreement with the IRS depends on your situation, the type of agreement, and how you interact with the IRS. Yes, in fact, the period of time that the IRS can collect a tax debt is generally limited to ten years, according to the IRS collection statute of limitations. The incorporation of these programs into the tax code indicated to many that the IRS was seeking to be a little more flexible in recovering more money owed to the government.
This program does not have a guaranteed acceptance policy and it is entirely up to the IRS to offer it to any qualifying taxpayer.
