The Internal Revenue Service (IRS) is responsible for collecting taxes in the United States. While the IRS has the power to collect taxes owed, it also has the authority to reduce a tax bill in certain circumstances.
This blog presents you a few ways that the IRS may reduce a tax bill:
1. Installment Agreements:
If an individual is unable to pay their tax bill in full, they can apply for an installment agreement with the IRS. This allows the taxpayer to make monthly payments towards their debt, often with reduced interest and penalties. The IRS may also agree to reduce the total amount owed as part of the agreement.
2. Offer in Compromise:
An Offer in Compromise (OIC) is a settlement agreement between the taxpayer and the IRS, which allows the taxpayer to pay less than the full amount owed. To be eligible for an OIC, the taxpayer must demonstrate that they cannot pay the full amount due, either because of financial hardship or because it would create an undue economic burden.
3. Penalty Abatement:
The IRS may agree to abate (forgive) penalties assessed for late payment or failure to file a tax return. This can significantly reduce the amount owed. To request penalty abatement, the taxpayer must provide a reasonable explanation for their failure to file or pay on time.
4. Innocent Spouse Relief:
If a married couple files a joint tax return, both individuals are responsible for the tax debt. However, in certain circumstances, one spouse may be relieved of responsibility for the debt if they can prove that they were not aware of or involved in the underpayment of taxes. This is known as Innocent Spouse Relief.
5. Statute of Limitations:
The IRS has a limited amount of time to collect taxes owed. This time limit, known as the statute of limitations, is usually 10 years from the date the tax was assessed. If the statute of limitations has expired, the IRS cannot collect the debt, and the taxpayer’s tax bill will be reduced to zero.
In conclusion, the IRS has the authority to reduce a tax bill in certain circumstances according to this blog. Taxpayers who are unable to pay their tax debt in full should consider applying for an installment agreement or Offer in Compromise, or request penalty abatement or Innocent Spouse Relief if eligible. Additionally, taxpayers should be aware of the statute of limitations and the time frame within which the IRS can collect taxes owed.