Key Takeaways
- Another Chance: Even though the IRS offers a payment plan for people who cannot meet the payment deadline for their taxes, some taxpayers will still find it hard; that’s when the One Time Forgiveness Program comes in.
- Unofficial Help: Even though it’s known as the "IRS One-Time Forgiveness Program", the name itself is not related to a single official debt-relief program, but is actually an umbrella term for several of them.
- Harsh Requirements: To be eligible for the One-Time Forgiveness Program, you must owe $50,000 or less in federal taxes, file all the required tax returns, and not have broken any other current tax laws.
- It’s About The Penalties: The “forgiveness” part actually refers to the waiving of penalties, not to the tax liability itself nor the interests that you’ve accrued.
- Proving Your Hardships: Some programs allow you to settle your tax debt if you can prove your financial hardship; you can also waive the penalties if you can provide a valid reason, such as illness, natural disasters, or getting bad advice from a tax professional.
Financial hardship makes taking care of your tax liabilities difficult, if not impossible. Sometimes a payment plan isn’t enough.
If you owe unpaid taxes to the IRS, you may be eligible for the IRS One Time Forgiveness Program. To qualify for this tax debt relief, you must owe $50,000 or less in federal tax debt, have filed all required income tax returns, and be in compliance with current tax laws.
To apply, you’ll need to provide documentation of your income, expenses, and assets. This can include pay stubs, bank statements, and other financial records. You’ll also need to fill out and submit Form 656, the Offer in Compromise application, which is a key part to the tax debt and penalty relief .
Additionally, the IRS offers the First Time Abate (FTA) waiver for certain penalties if you have a clean compliance history for the past three years. This can help reduce your overall tax debt as an individual taxpayer.
First-time Abatement Only Applies to These Penalties
If you are facing penalties for failure to file federal tax returns, failure to make tax payments, or failure to deposit, you may be eligible for First Time Abate relief. The First Time Abate program offers a relief option for the removal of certain penalties for individuals and businesses who have a clean penalty history.
To qualify for First Time Abate, the penalties must be related to a return, you must have no outstanding tax returns or extensions, and have no penalties for the past three years.
To be eligible for relief, you must have also paid any tax due or arranged monthly payments to deal with unpaid balances.
First-time Penalty Abatement relief is automatic, meaning you don’t need to formally request it. If you meet the criteria, these penalties will be removed from your account:
- The failure to file penalty
- The failure to deposit penalty
- The late filing penalty
Additionally, you must have a clean penalty history for the previous three years, with no penalties for failing to file, failing to pay, or failing to deposit.
Qualifying for First-Time Abatement
If you’ve received a notice from the IRS indicating that you owe penalties for the first time, you may be eligible for the First Time Abate (FTA) program. This program allows you to have the penalties waived if you meet certain criteria. Here’s how you can qualify for first-time penalty abatement.
1. Understand the Eligibility Criteria
To qualify, you must meet three specific criteria.
First, you must have a clean compliance history, meaning you have not been penalized for the past three years or have filed all required returns and paid or arranged to pay any tax due.
Second, you must have no penalties of a similar nature in the past.
Lastly, you must have received a penalty notice with your paperwork from the IRS. Generally, eligible taxpayers must have a penalty and debt in order to qualify for a debt relief program.
2. Take Action Promptly
Once you receive a notice from the IRS with penalties, don’t waste any time in applying for First Time Abate. You must request the abatement in writing and include the statement “I am eligible for first time penalty abatement” in your request.
3. Reach Out for Help
If you’re unsure whether you qualify for First Time Abate or need assistance with the application process, consider seeking help from a tax professional. They can provide guidance and support in navigating the IRS procedures and increasing your chances of qualifying for the program.
Related: Find Out If You Qualify For Tax Relief Now
Three Years of Complying with Taxes and Penalties
You can establish a history of good tax compliance by ensuring that you have filed the same tax return type for the past 3 tax years, without receiving any penalties during that time. Additionally, it is important to have no unresolved penalties while also not receiving First Time Abate relief. This shows the IRS that you have consistently met your filing requirements and have not incurred any penalties for non-compliance.
If you do have tax debt, the IRS offers forgiveness and relief programs to help manage it. These programs can include installment agreements, offers in compromise, and currently not collectible status. These options can help you settle your tax debt for less than the full amount owed or provide temporary relief from payment obligations.
By maintaining good tax compliance and being proactive about addressing any tax debt, you can work towards a more manageable financial situation and avoid further penalties from the IRS. It’s important to stay informed about your tax obligations and take advantage of the resources available to help you achieve compliance and resolve any issues with tax debt.
How to Apply for IRS One Time Forgiveness (aka Penalty Abatement)
Applying for IRS one-time debt forgiveness, also known as penalty abatement, requires completing and submitting Form 656, Offer in Compromise, along with detailed financial information and supporting documentation. This process allows you to negotiate with the IRS to settle your tax debt for less than the full amount owed.
To start, you’ll need to gather and submit information about your income, expenses, assets, and liabilities. Be thorough and honest, as the IRS will review this information to determine your eligibility for the debt forgiveness program. It’s important to include all relevant documentation, such as pay stubs, bank statements, and tax returns, to support your financial situation.
During the several-month review process, be patient and responsive to any requests for additional documentation or clarification from the IRS. This may include providing more details about your expenses or explaining any discrepancies in your financial information.
Remember, the key to a successful application for IRS debt forgiveness is providing accurate and detailed financial information and being cooperative throughout the review process. It’s worth the effort to potentially reduce or eliminate your tax debt through this program.
How to Get the IRS to Forgive Your Penalties and Interest
Can the Debt Forgiveness Program Come With Penalties of Its Own?
If you are considering utilizing the IRS Debt Forgiveness program, it’s important to understand the potential consequences. While the program can provide relief from a portion of your tax debt, there are important factors to consider.
First, the amount forgiven through the program may be considered as taxable income, resulting in potential tax implications in the future. This means that you could owe taxes on the amount forgiven, which could impact your financial situation.
Additionally, utilizing the debt forgiveness program could also have implications for your credit score. If you’re accustomed to living with credit card debt and making credit card payments, getting a major debt from the federal government forgiven might draw attention. It may be seen as a negative factor by lenders and could impact your ability to qualify for loans or credit cards in the future. You’ll also want to carefully consider the possibility of owing more money in the future and the impact on your credit score before deciding whether to use the IRS Debt Forgiveness program.
How Tax Debt Forgiveness Works Overall
You can address your overdue tax bills through the IRS tax debt forgiveness program by first researching the program and understanding the qualifications and application process, as well as by discussing them with a tax attorney. Look into the specific criteria the IRS has for forgiveness and see if you meet them. It’s important to gather all necessary documents and information before applying.
Consulting with a tax professional or attorney is also key in understanding your financial situation and exploring your options for tax debt forgiveness. They can provide expert guidance on which forgiveness programs you may qualify for and help you navigate the application process.
By taking these steps, you can better understand how tax debt forgiveness works and the potential options available to you. It’s important to stay informed and proactive in addressing your tax debt to ensure you are taking the necessary steps to find relief.
IRS One-Time Forgiveness Program: FAQ
1. What is the IRS One-Time Forgiveness Program?
The IRS One-Time Forgiveness Program is really an umbrella term for a number of programs and initiatives to help people who’ve fallen on hard times to pay their taxes. That includes options like the First-Time Penalty Abatement (FTA), Offers in Compromise (OIC), and other relief measures. These programs are designed to assist taxpayers who have experienced unexpected circumstances and need help addressing penalties or settling their tax liabilities.
2. Who is eligible for the First-Time Penalty Abatement (FTA)?
There are a number of qualifying criteria you must meet for the FTA, including:
- You have no prior penalties (other than a minor penalty) for the previous three years.
- You are current with all tax filings, or you have filed an extension.
- You have paid or arranged to pay any outstanding taxes.
If you meet these requirements, you can request penalty relief for failure-to-file, failure-to-pay, or failure-to-deposit penalties.
3. What is an Offer in Compromise, and how does it work?
An Offer in Compromise (OIC) lets you settle your tax debt for less than the full amount owed, but only if you demonstrate that paying the full amount would cause you considerable financial hardship. To apply, you must submit Form 656, along with detailed financial documentation and an application fee. The IRS evaluates whether the offer represents the most they can reasonably expect to collect, so don’t expect to get your request approved just because you applied.
4. Can I request penalty relief due to reasonable cause?
Yes, the IRS may waive penalties if you can demonstrate reasonable cause for noncompliance. Examples include serious illness or medical conditions, natural disasters, and erroneous advice from the IRS or a tax professional (be careful out there!). To request relief, you must provide a written explanation and supporting documentation, so make sure you keep your tax documents in order throughout the year.
5. How can I request the First-Time Penalty Abatement?
You can request FTA by, calling the IRS at the number listed on your penalty notice. Or, you could send a written request explaining your eligibility. Whatever option you choose, we recommend working with a tax professional who can assist with the process. Once you’ve contacted them, the IRS will review your account history and confirm eligibility before granting the abatement.
6. Does the IRS Forgiveness Program apply to interest on taxes?
No, the IRS does not typically forgive interest on unpaid taxes. However, if you manage to get your penalties are removed, then the associated interest on those penalties may also be reduced. Also, there are some rare cases in which, if an Offer in Compromise is accepted, some interest may be effectively forgiven as part of the overall settlement; these are rare occurrences, however, so don’t count on them.
7. How long does it take for the IRS to process forgiveness requests?
The processing time varies depending on the type of forgiveness requested:
- First-Time Penalty Abatement: Typically resolved within a few weeks to a couple of months.
- Offer in Compromise: May take 6 to 12 months or longer due to the detailed review process.
- Reasonable Cause Relief: Varies widely depending on the complexity of the case.
Patience is essential, as each case is reviewed individually.
Sources
“How to Get the IRS to Forgive Your Penalties and Interest” – Tax Hack
Jessie Seaman
Jessie Seaman, Esq. & EA, is a Florida attorney and IRS Enrolled Agent with over 12 years of experience in state and federal tax controversy resolution. Passionate about helping individuals and businesses navigate complex tax challenges, Jessie combines her legal expertise with a dedication to education, often mentoring future tax professionals and speaking at national conferences. A double major graduate from the University of South Florida and a Juris Doctor recipient from Florida Coastal School of Law, she has overseen tens of thousands of tax resolution cases, from simple privacy plans to high-profile matters. Jessie currently resides in Chicago, enjoying outdoor adventures with her Pomsky, Fisher.
