Understanding IRS One-Time Forgiveness—Is This Program Real?
The term “one-time forgiveness” is vague, often resulting in taxpayers believing they can get significant cuts to their taxes the first time they pay late or fall behind. While the IRS does offer a number of payment programs and even a few tax forgiveness options that help taxpayers catch up on past-due taxes, it’s important to understand that you must qualify for these programs.
These programs do not always result in having your taxes wiped out or paid off for pennies on the dollar. That can be possible, but generally only if you have very limited income and assets.
While large tax resolution agencies make bold promises and claims in their ads, it’s crucial to talk to a legitimate tax professional who can walk you through your options. That’s where we come in—at Seattle Legal Services, we help taxpayers like you take control of their taxes and get on track. Call us at 425-428-5262 to set up a consultation now.
What is IRS First-Time Penalty Abatement?
When people talk about the IRS one-time forgiveness program, they are often referring to first-time penalty abatement. If you have previously paid your taxes on time and this is your first time falling behind, the IRS may be willing to waive your penalties. Depending on how long you waited to file and pay your taxes, that could result in a significant decrease in your final tax bill.
Eligibility Criteria
Only certain tax penalties qualify for first-time abatement. These include failure to file, failure to pay, and failure to deposit penalties. You’ll note that this doesn’t include penalties that are assessed for accuracy-related errors, erroneous claims for refunds for credits, or information returns.
This type of relief is only intended for those who were penalized because they fell behind, waited to file because they could not pay in full, or otherwise made a simple mistake. The IRS doesn’t grant relief to those who intentionally underpay, hide sources of income, or claim credits or deductions they do not qualify for.
One of the most important qualifications for relief is a history of good tax compliance. The IRS requires that you have filed your return for the three years prior to the tax year in which you received the penalty. During those three years, you must have either not received any penalties or have had penalties removed for a good reason beyond first time abatement.
Consider this example: you filed your return on time in 2024 for the 2023 tax year. However, you did not have the money to pay your taxes, and so the failure-to-pay penalty started accruing after the due date. You filed and paid your taxes on time for the tax years 2022, 2021, and 2020. At no point did you incur any penalties for those years. The IRS would likely approve you for first-time abatement.
Imagine a similar scenario. Because your withholdings were not ideal for your income and dependents, you ended up with a large tax bill for the tax year 2023. You filed on time but did not pay, because you did not have the funds to do so. Unfortunately, you had the same situation occur in tax year 2022, resulting in a late payment of your 2022 taxes. You incurred failure-to-pay penalties in 2022 but ultimately paid them off. But since you did incur penalties in the three years prior to the 2023 tax year, you would likely not qualify for first-time abatement.
Debunking the “One-Time Forgiveness” Marketing Ploy
Unfortunately, there’s no shortage of companies looking to take advantage of taxpayers who are desperate to lower their tax bills. As a result, there are lots of misconceptions out there about one-time forgiveness.
You’ve likely seen the ads—they paint the IRS as the bad guy that refuses to accept reasonable payments and demands exorbitant amount of money from taxpayers. But they—the company named in the ad—claims that they are able to clear your IRS tax debt for pennies on the dollar, thanks to one-time forgiveness!
While it’s true that the IRS has a lot of power to collect unpaid taxes, the agency does have reasonable options for taxpayers. Big tax resolution companies like to build up fear in their advertising campaigns and then claim they are the only ones who can help. However, their services are often subpar, and these tend to be bait-and-switch campaigns.
Bait-and-Switch Tactics in Tax Resolution Advertising
Of course, tax forgiveness sounds too good to be true, which is enough to get lots of people inquiring. They contact the tax relief companies and provide their tax information and financial records, so they are already invested in terms of time and effort. This is where the bait-and-switch begins.
The tax relief firm “reviews” your documents—we put it in quotation marks because in many cases, they don’t actually put much time or resources into the review of these documents before moving on to the next step of their sales pitch—and contact you to let you know that unfortunately, you don’t qualify for the one-time forgiveness or settlement service you saw advertised.
However, they are more than happy to charge you a too-high fee to negotiate with the IRS to reduce your penalties or come up with a payment plan. While these options may save you some money or give you time to pay off your debt, they are not the quick fix promised in the firm’s advertising.
High-quality tax attorney firms don’t need to use this type of deceptive advertising. Instead, they provide clients with the guidance and services they really need, and they rely on the strengths of their reputations to attract new clients.
Recognizing and Avoiding Aggressive Advertising Tactics
Once you begin working with a legitimate tax relief company, it quickly becomes very easy to recognize those that are just in it to make some fast money off the backs of desperate taxpayers. They may send out fake IRS letters, including those that threaten to jail taxpayers who don’t pay immediately. Upon getting your information, they assign you to one of their sales pros.
Yes, a salesperson—these companies, which claim to be tax resolution firms, are more like well-oiled sales machines. The sales professional gets you on the phone and begins the hard sell. They tell you all of the horrid outcomes you may face if you don’t work with them right now, including jail time, the loss of your home, and wage garnishment.
They completely ignore the fact that it takes a significant amount of time for any of these outcomes to happen, and that the IRS is generally cooperative when taxpayers want to explore other payment arrangements. These companies prey on the natural fear people have of the IRS, and they exploit it in order to line your pockets while offering you solutions that you could get for far less money with a legitimate tax relief firm.
That’s why we recommend vetting different tax solution firms before deciding to work with one. Your financial wellbeing is a key part of your life, and you deserve to work with a firm that is staffed by tax professionals who are fully educated in tax law and IRS payment options.
That said, if you’re interested in tax forgiveness, the IRS has a few options in addition to first-time abatement.
Other Tax Relief Options Beyond First-Time Abatement
First-time penalty abatement isn’t available to everyone, but the IRS does have a variety of other relief options for qualifying taxpayers. While they have a reputation for being relentless in their efforts to collect past-due taxes, the fact is that they are often willing to work with taxpayers who take initiative and reach out to request assistance.
Reasonable Cause Penalty Abatement
Another form of penalty abatement provides relief if you have reasonable cause. This is separate from the first-time relief we discussed earlier. Common reasons that may allow you to seek relief include:
- Fires, civil disturbances, and natural disasters
- Inability to get records needed to file or pay taxes
- System issues delaying an electronic payment or filing
- Death or serious illness of the individual or their immediate family
The IRS does not generally offer relief when a taxpayer relies on a tax preparer who does not file or pay on time, the taxpayer makes an error due to lack of knowledge, the taxpayer makes avoidable mistakes and oversights, or the taxpayer simply does not have the money to pay their taxes.
To apply for reasonable cause penalty abatement, you can respond to the IRS via the address listed on your most recent tax notice.
Offer in Compromise
Although this option is only available to a small percentage of taxpayers, it can be incredibly helpful for those who do qualify. When you apply for an offer in compromise, you provide the IRS with an in-depth look at your finances. They request documentation of your income sources, dependents, other earners in your household, assets, and expenses.
If your income and assets are low enough to prove that you cannot pay your tax bill in full, the IRS may be open to accepting an amount less than what you owe. The amount they are willing to accept is dependent on your financial status.
This is the type of relief often referred to in misleading tax relief advertisements. It’s misleading because these tax firms make it sound like it’s a secret form of relief that you can only access if you go through them. They also make it sound like everyone qualifies if they know to ask for it. In reality, the IRS only considers applications from those who genuinely meet their qualifications, and fewer than half of all applications are approved.
To apply for an offer in compromise, you will need the Form 656 booklet. This includes all of the forms you need, as well as a list of supporting documentation.
Currently Not Collectible Status
This is technically a form of tax relief, but it is only temporary. If the IRS analyzes your finances and finds that they are not able to collect anything from you, you will be considered “currently not collectible.” Penalties and interest will continue to accrue on your balance, and the IRS will check back on you from time to time. When your financial situation changes, they will expect you to resume payments on your tax debt.
CNC status can ultimately lead to tax forgiveness. The IRS only has 10 years to collect a tax debt, and if you stay on CNC status throughout that whole time, the debt will effectively be forgiven at the end of the collection period.
To apply for currently not collectible status, you must contact the IRS. You can call the IRS at the phone number listed on your most recent notice. Plan on filling out Form 433-A or Form 433-F; these forms give the IRS extensive information on your financial standing.
Partial Payment Installment Agreement
This program is a hybrid of monthly payments and tax forgiveness. Like the other programs, you must provide the IRS with detailed financial info. Then, if you qualify, you get to make monthly payments on your tax debt. Any debt remaining after the debt expiration date is forgiven.
The drawback of this program is that the IRS can rescind the agreement if your income improves or your financial situation changes— for example, if you inherit money, the IRS will expect you to pay your tax bill.
Innocent Spouse Relief
Innocent spouse relief can provide you with forgiveness of a tax bill that is due to your spouse. This program is available to those who are harmed by their spouse’s understated taxes on a joint tax return. An individual may apply for individual spouse relief if their spouse understated their taxes by leaving out sources of income or claiming deductions they were not entitled to, and they did not know that their spouse did so. Those approved for this form of relief can be absolved from paying additional taxes due to their spouse’s error. You will need to fill out Form 8857 to request innocent spouse relief from the IRS.
If you don’t qualify for any of the above forgiveness programs, you should look into an Installment Agreement which lets you pay monthly payments on the tax debt.
How Much Can You Save?
Depending on how much tax debt you have and how long you have waited to file or pay your taxes, first-time penalty abatement could save you a significant amount of money.
Savings Potential With First-Time Penalty Abatement
A few sample calculations can highlight the value of first-time penalty abatement. Consider a taxpayer who files and pays their taxes late for the 2023 tax year. Although the tax return and tax payments were due on April 15, 2024, the taxpayer did not actually submit their return until November 2024 and did not request a filing extension.
The return shows that the taxpayer owes $10,000 but they do not pay until April 2025. By the time they pay off the debt, they will have accrued $2,500 in a failure-to-file penalty and $600 to $1200 in a failure to pay penalty. If they were granted first-time penalty abatement, they would save $3,100 to $3,700. Additionally, the IRS will also remove the interest that was applied to these penalties.
Consider another taxpayer in the same tax year. They owed just $6,000. They filed three months late and paid nine months after the deadline. The failure-to-file penalty would be around $900 and the failure-to-pay penalty would be $270. Getting relief from both penalties would save the taxpayer $1170.
Savings Across Different IRS Programs
It can be difficult to compare savings across different relief programs, as each works differently. However, understanding these different options can help you decide which type of relief you’ll seek through the IRS.
The offer in compromise is often an in-demand option for those who qualify. Savings in this program vary widely, as the IRS bases their idea of an acceptable offer on your financial wellbeing. For example, someone with $10,000 in tax debt and some income but minimal assets may be permitted to settle their tax debt for $5,000. Someone else who owes the same amount but has no income and minimal assets to their name may settle for as little as $1,000 or even just $1 in extreme cases.
What about currently not collectible status? The difficulty here is that currently not collectible status doesn’t technically save you any money unless you remain currently not collectible until the Collection Statute Expiration Date. If the CSED runs out and you have remained currently not collectible the entire time, the IRS can no longer seek payment for those taxes and you will have essentially saved the entire amount.
But the alternative actually leaves you in a worse financial position. Imagine the IRS considers you currently not collectible for two years before they request financial information. When they review your new financial information, they decide that you are financially able to begin paying your taxes. At that point, you owe the entire initial amount, plus all accrued penalties and interest.
While an installment agreement generally doesn’t save money—it just spreads out your payments—it does decrease your failure-to-pay penalty to 0.25%. Over a period of six years, this could save a lot of money.
Why You Should Be Wary of Big Tax Resolution Firms
When you are looking for solutions to your tax problems, you’ll undoubtedly see flashy billboards and hear radio and TV ads promising fast, painless solutions. It is crucial to not let your anxiety about dealing with the IRS drive your decision-making, since getting tangled up with big tax relief firms could cost you unnecessary time and money.
The Risks of Falling for Marketing Gimmicks
The biggest risk of falling for an unethical tax relief company is that you’ll spend your hard-earned money—money that could go toward your tax debt—on a company that can’t actually do anything for you. Remember, when you see these companies’ ads, those ads cost money.
That is where their budget goes; it goes to expensive marketing techniques that bring in more clients. Their money doesn’t go into hiring the most qualified tax professionals or ensuring that their caseloads are reasonable for the amount of work they can do. They save money by overloading tax professionals, underpaying them, and pushing people through the sales funnel as quickly as possible. That often means you get the same service you could have gotten for free by dealing directly with the IRS, but instead, you paid thousands.
Another risk is that you could waste time working with a sales agent or tax consultant who simply doesn’t know how to deal with your specific tax situation. The longer you wait to address your tax issues with the IRS, the more your interest and penalties will pile up. On top of that, waiting longer gets you closer and closer to having your assets levied. The time an inexperienced or unqualified “tax specialist” spends trying and failing to get you approved for different programs is time you could spend working with a qualified tax professional who genuinely cares about finding a solution that fits your needs.
How to Find Legitimate Tax Help
When it comes to finding legitimate tax assistance, you want to find a company where you know who you’re working with and what their credentials are. Your point of contact should be an enrolled agent, CPA, or tax attorney—not a sales professional. You get this type of service when you choose a local tax professional with a strong reputation in your community, a list of tax professionals who work directly with clients, and reasonable claims that they can back up with real client results.
You can verify the credibility of potential companies when you look at their website and marketing materials. Do they offer clear information on different tax situations? Do they recognize that there are different solutions for each client or do they make vague references to tax forgiveness and one-time forgiveness programs? When discussing tax problems, do they offer realistic timelines and action steps, or do they indicate that if you fail to call them now that you’ll end up jailed by the IRS?
You can also learn a lot by scheduling a call with firms that interest you. If the consultation involves them asking about your tax situation, explaining different options, and providing professional guidance without trying to urge you to immediate action, you can expect more of the same if you hire them. If they rush you through the consultation while getting minimal information on your tax situation and seem focused on getting you to pay a fee immediately, their advice may be questionable.
While one-time forgiveness may not be as cut-and-dry as it sounds, first-time penalty abatement and other tax relief options can give you some breathing room in your budget and help you address your tax issues head-on. The best way to find out the best option for your current needs is to meet with a qualified tax professional who can provide targeted advice based on your tax debt, financial situation, and tax history.
At Seattle Legal Services, we pride ourselves on providing up-to-date information and custom guidance on tax solutions to our clients. Dealing with the IRS is stressful enough; you don’t need more anxiety caused by working with the wrong tax relief firm. Schedule a consultation to discuss your concerns with one of our experienced tax attorneys by contacting us online or calling us at 425-428-5262.