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Does the IRS Forgive Tax Debt After 10 Years?

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Dec. 1 2021, Published 5:11 a.m. ET

If you’re in financial hardship and owe the IRS unpaid back taxes, you may be interested in a tax debt compromise program. While seeking IRS debt forgiveness, you need to watch out for scams that people are falling for and making their situation worse.

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The IRS exists to raise money for government spending, and it takes its job seriously. You need to submit your tax returns and make the payments due before the deadline to avoid problems with the IRS, such as severe penalties that could grow into huge tax debt.

Job loss, illness, or a busy life may cause you to fall behind in taxes. For the self-employed, there may simply be no money to pay taxes, and for others, student loan burden has further complicated the financial situation. Tax debt has been described as possibly the worst type of debt, though you can obtain relief.

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How the tax debt compromise program works

The IRS has an avenue for people in dire need of tax debt relief—the "offer in compromise" program. It allows you to settle your IRS debt for less than the full amount you owe.

You initiate the program by completing an application form, submitting it to the IRS, and then paying an application fee of about $200. The IRS will review the application, looking into factors such as your income and expenses, and approve or reject it. To be eligible for the program, your tax filings must be current. You'll be disqualified if you’re in an open bankruptcy proceeding.

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If the IRS accepts your application, you can make a lump sum payment to clear the bill or reduce it over time through installments. If you choose installment payments, you'll usually get a few years to settle the debt. Defaulting on the agreement can make your situation much worse.

While you can work with the IRS directly for debt relief, it’s recommended that you get the help of a professional. The application form is detailed, and you may make mistakes when completing it that could hurt your chances of getting the relief you want.

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Does the IRS forgive debt after 10 years?

The IRS has 10 years to collect past-due taxes. If it can’t collect tax debt in that time, the IRS will write it off. While waiting out the collection time may seem like a great escape, the risks of taking that road are high. Besides severely damaging your credit record, waiting for the tax debt to expire may backfire and worsen your situation.

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Suing IRS debt collectors is another bad idea. It may be better to take out a bank loan to settle with the IRS instead of starting a fight.

The tax debt compromise scam, explained

Many people desperate for IRS debt forgiveness have fallen for scams. Some receive a call from a company promising to help them resolve their tax debt. They may be asked for an upfront payment for the assistance, only to discover that it hasn't gone anywhere in discharging the IRS debt. Whereas there are organizations that may help you deal with a tax debt situation, you need to be careful with unsolicited help.

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