When Does the IRS Forgive Back Taxes? A Complete Guide

When you owe back taxes to the Internal Revenue Service (IRS), the agency will forgive the debt once the 10-year statute of limitation passes. However, “tax forgiveness” has multiple meanings, depending on who uses the term, and it often refers to IRS relief programs with different names.

If you’re struggling with back taxes, you’re not alone. At Damiens Law, we help people explore real IRS relief options and find a path forward. Reach out today for a complimentary consultation and take the first step toward resolving your tax issues.

Key Takeaways

• Tax forgiveness – when the IRS waives a tax liability so you don’t have to pay.
• Is it real? Yes, there are situations when the IRS will forgive taxes.
• How do you apply for tax forgiveness? Figure out which relief options apply to your situation, and then submit the relevant paperwork.
• Do all taxpayers qualify? No, you must meet strict criteria that vary based on the program you apply for.
• How to get help – contact an experienced tax attorney to talk about your options.

Understanding What People Mean by “IRS Forgiveness”

The IRS doesn’t have an official program called a “forgiveness program.” However, many tax relief companies talk about IRS forgiveness as if it’s an actual program you can apply for. They may even claim it’s a limited-time offer, or their ads may claim that it’s part of the IRS’s Fresh Start Initiative. 

Fresh Start is another phrase that’s commonly used in advertising in a way that’s not entirely straightforward. While not a standalone program, Fresh Start was a set of policy changes introduced over a decade ago to make it easier for taxpayers to pay off back taxes and avoid harsh collection actions.

So what do these terms really mean? They usually refer to a range of existing tax relief options designed to help struggling taxpayers. These include an Offer in Compromise, partial payment installment agreements, Currently Not Collectible status, and penalty abatement.

Does the IRS Ever Forgive Back Taxes? 

The IRS doesn’t offer a broad “one-time forgiveness” program, but the agency does provide several relief options for people who can’t afford to pay their full tax bill. These programs won’t make your debt disappear overnight, but if you qualify, they can reduce what you owe or make repayment more manageable.

IRS tax relief comes in several forms. 

• Penalty abatement can remove certain fees if you have a good compliance history or valid reason for falling behind. 
• Offer in Compromise lets you settle your tax debt for less than you owe. If you’re in serious financial hardship, 
• Currently Not Collectible status can temporarily halt collection efforts if you’re in serious financial hardship. 
• Payment plans allow you to pay off your balance in monthly installments. 

While often referred to as “forgiveness,” these programs typically reduce or restructure debt rather than erase it entirely. In some cases, you can even get forgiveness by waiting out the IRS and letting the tax debt expire. 

What are my options for IRS tax relief?

Here’s a quick comparison of the most common IRS tax relief options, who they help, and what to expect from each.

When Tax Debt Expires – and How to Use That to Your Advantage

Generally, the IRS has a window of 10 years from the assessment date to collect your tax balance. The Collection Statute Expiration Date (CSED) marks the end of the collection period when the IRS is no longer able to collect, and effectively, the tax gets forgiven.

Some tax assessments that have their own CSEDs include:

• An original assessment from a return you filed voluntarily.
• An assessment resulting from an amended return filing.
• A Substitute for Return assessment.
• A civil penalty assessment.
• An audit assessment.

Note that the IRS can suspend (pause) or extend the collection period under specific circumstances, delaying the CSED. For example, a CSED suspension occurs while the IRS reviews an installation agreement request or an offer in compromise application. In other words, the tax debt may not expire until slightly after the 10 year period ends.

Although very few people are able to wait out the IRS, there are specific programs that leverage the collection expiration date to your advantage. Let’s take a look:

Currently Not Collectible (CNC) Status

The CSED may also become relevant if the IRS places your account in currently-not-collectible status. Policy Statement 5-71 states that a financial hardship exists when a levy action by the IRS prevents taxpayers from meeting their basic living expenses. You may also have a financial hardship if the IRS’s Collection Financial Standards equal or exceed your income.

For example, suppose Taxpayer A’s income is not enough to cover back tax payments and their family’s living expenses, such as rent, food, and medical treatments. In this example, the IRS will report the account as currently not collectible and delay collection efforts until A’s financial situation improves. However, if the collection statute expires while the account is non-collectible, the tax debt will effectively expire or be forgiven.

In other words, CNC status does not equate to tax forgiveness, but often, being in this status can lead to tax forgiveness. 

Partial Payment Installment Agreement (PPIA) 

There is one type of payment plan where you basically make payments on a settlement, and that’s called a partial payment installment agreement (PPIA). If you qualify for a PPIA, the IRS will let you make a monthly payment you can afford. 

Once the collection period expires, the agreement ends, and the IRS forgives the unpaid portion of your tax debt. You will need to provide detailed financial information to qualify for this type of payment plan.

Penalty Abatement

A first-time penalty abatement is a form of partial IRS forgiveness. This relief involves the removal of failure-to-pay, failure-to-file, or failure-to-deposit penalties from your tax balance.

You will typically only qualify for a first-time penalty abatement if you:

• Paid or arranged to pay your tax liability
• Have a history of good compliance with no penalty assessments during the past three years
• Have filed all currently-due returns on time or received an extension

Some taxpayers can still get penalty abatement even if they don’t meet the standard requirements. If you had a valid reason for filing late, like a serious illness, being in jail, or losing records in a disaster, the IRS may grant penalty relief for reasonable cause.

How to Reduce Tax Debt With Offer in Compromise

Leveraging the statute of limitations on collection is not the only option. You may be able to get partial forgiveness through an offer in compromise.

An offer in compromise (OIC) is a settlement agreement that involves paying only a portion of your tax liability. The IRS forgives the remainder of the debt upon acceptance of the offer.

You are eligible to apply for an OIC if you are: 

• Current and compliant
• Not subject to an open bankruptcy proceeding
• An employer who made a tax deposit for the current and past two quarters

Note: If you are applying for the current year, you must have a valid current-year return extension or your return must be filed. As a rule, the IRS will only approve an OIC if the offer amount represents the maximum amount the agency can reasonably expect to collect before the CSED. When evaluating your offer, the IRS will consider the following:

• The amount you owe in back taxes, penalties, and interest
• Your annual income and the amount you can contribute to your tax debt
• Your net equity in any assets

Most people apply for an Offer in Compromise when they owe more than they can afford to pay, based on their income and assets—a situation known as doubt as to collectibility. But the IRS also considers offers from taxpayers who believe they don’t actually owe the full amount (doubt as to liability) or who would face serious hardship if forced to pay (effective tax administration). If you qualify, these programs can lead to partial tax forgiveness.

Frequently Asked Questions

Does the IRS have a forgiveness program?

The IRS has no tax relief option called a “forgiveness program.” When tax professionals or other parties talk about tax forgiveness programs, they typically refer to tax resolution solutions such as:

• An offer in compromise
• A partial payment installment agreement
• Currently not collectible status
• A penalty abatement

The IRS’s Fresh Start Initiative Reforms that made it easier for taxpayers to pay their back taxes also fall under “forgiveness programs.” Note that the Fresh Start is also not an IRS program. It’s a collection of reforms designed to help taxpayers with tax debts, and it was implemented over 10 years ago.

What do tax relief companies mean when using the term “IRS one-time forgiveness”? 

If you’ve searched online about owing back taxes, you’ve probably seen ads from tax relief companies. Many of them claim they can wipe out your debt or drastically reduce it through a one-time forgiveness program, often promising to settle for “pennies on the dollar.”

In reality, the IRS has no one-time forgiveness program. These companies use the phrase as a marketing hook. The option that these tax resolution companies refer to is a first-time penalty abatement. 

Why should I avoid companies selling on the promise of “tax forgiveness”? 

Be cautious if a company offers to apply for a tax forgiveness program on your behalf in exchange for upfront or monthly fees. These charges can add up quickly, sometimes costing thousands of dollars and making your financial situation worse. 

These companies are often easy to spot. They make sweeping promises, like stopping all IRS collection actions or guaranteeing you qualify for a hardship program. In reality, they usually don’t have access to your financial details or tax history, and even if they did, only the IRS can determine if you’re eligible for any type of tax relief.

Is it possible to dodge the IRS until the CSED expires?

Once taxpayers learn that the collection period expires after ten years, they often think that the best course of action is to do nothing and wait out this period. However, as a powerful government agency, the IRS is unlikely to leave you be. 

If the IRS receives no response to the Notice and Demand for Payment, they may file a Notice of Federal Tax Lien, a public record of the government’s claim against your property. In other words, if you decide to sell a property, the government will be the first to claim the proceeds. 

The IRS also has the power to collect your tax debt by seizing the money in your bank account or garnishing your wages. As a result, avoiding the IRS is a challenging task. Collection action may leave you in financial hardship, avoidable through one of the IRS’s tax resolution options.

Get Professional Help in Dealing With IRS Back Tax Debt 

Exploring IRS tax relief options can be a smart way to address your debt and regain financial control, but it’s important to work with a tax relief professional who doesn’t use misleading language and who can help you understand your real options. 

At Damiens Law, our experienced tax attorney will review your situation and help you find the best path toward resolution. If you’re struggling with tax debt, contact us to schedule a consultation and learn what steps you can take next.