Tax Forgiveness in Virginia

Virginia tax forgiveness options overview

Virginia offers a few tax relief options for those who are struggling to pay off their tax debt in the commonwealth.

Offer in compromise

An offer in compromise lowers the principal amount you owe if you can show that full payment would create genuine financial hardship, or that there’s doubt about whether the liability is even correct. This option is typically the hardest to qualify for since it requires extensive financial documentation.

“The most common misconception for both the state and federal offer in compromise programs is that you can simply offer a lesser amount and negotiate back and forth until you reach a figure that is acceptable for both of you,” said Christopher Jervis, an enrolled agent and National Tax Practice Institute fellow in the Atlanta area with 20 years' experience providing tax preparation services. “It doesn’t work like that. Your offer amount is a math formula based on your income, assets, liabilities, allowable expenses and time remaining in the statute of limitations.”

Currently not collectible (CNC) status

If you’re experiencing financial trouble and you can’t afford to tackle your tax debt, you might qualify for a temporary delay in collection activities through currently not collectible (CNC) status.

Note that the IRS needs to grant you CNC status before you apply for the status in Virginia. If you have CNC status with the IRS, you can apply for Virginia CNC status by sending an email to CollectionsOIC@tax.virginia.gov with either an IRS transcript showing your most recent CNC status or your official IRS currently not collectible notice. 

Once you receive CNC status with Virginia, your debts are paused but not forgiven. Penalties and interest may still accrue.

» MORE: What to know about IRS tax forgiveness

Penalty waivers

Penalty waivers are generally more accessible than offers in compromise. Virginia will often remove penalties (though not interest or underlying tax) if you have a reasonable cause for not paying on time.

Payment plans

Payment plans won’t forgive anything, but they let you pay over time instead of all at once. Many plans last up to 24 months, though you may be able to request longer terms depending on your situation.

Virginia offer in compromise eligibility

An offer in compromise (OIC) lets you settle your tax debt for less than what you owe. To qualify, you need to provide a clear reason why you can’t pay the full balance.

Financial hardship and collectibility

The most common way to qualify for an OIC is by proving financial hardship. This means you don’t have enough income or assets to fully pay your tax debt now or in the foreseeable future.

You may qualify for an offer in compromise if you:

• Have low income and are struggling to pay basic living expenses
• Experienced a catastrophic event that’s caused financial hardship
• Are struggling to pay your bills due to serious health problems
• Agree that you owe the amount due and are not challenging the debt

Doubtful liability claims

You may also qualify for an OIC if there’s a legitimate dispute about whether you actually owe the tax.

This could apply if:

• The tax was assessed in error
• Documentation is missing or incorrect
• You have evidence that contradicts the state’s calculation

Penalty waiver over $2,000

If your penalties total more than $2,000, you could request relief through an OIC instead of a waiver request. This typically requires a more detailed review of your financial situation and supporting documentation, though.

Forms, fees and submission steps

To apply for an OIC, you typically need to provide:

• The completed offer in compromise application
• Detailed financial statements showing income, expenses, assets and liabilities
• Supporting documents such as bank statements, pay stubs, tax returns and bills
• A $50 nonrefundable administrative fee

If you’re not sure whether an OIC is right for you, call the Virginia Department of Taxation at 804-367-8045 to discuss your tax forgiveness options.

» MORE: Best tax relief companies

Virginia penalty forgiveness and interest relief

If your tax bill includes penalties, you may be able to get them waived depending on your situation.

Penalty waiver under $2,000

For penalties less than $2,000, you can typically request a waiver directly without going through the full offer in compromise process. However, for penalty amounts of $2,000 or higher, an offer in compromise is generally a more suitable tax relief option.

Reasonable cause documentation

To qualify for penalty forgiveness, you’ll need to prove that something outside your control prevented you from filing or paying on time. Examples may include fire, death, illness requiring hospitalization on or around the due date, flood or natural disaster, or other unusual situations. You typically won’t get your penalty waived due to oversight, such as forgetting to mail a return.

Interest relief limits

Even if your penalties are waived, interest typically continues to accrue until the balance is paid in full. Interest is assessed at the federal underpayment rate established under Internal Revenue Code Section 6621, plus 2%.

Where to mail requests

To request a waiver, write to the Virginia Department of Taxation with the details of your case, and include any documentation that supports your claim. Send your request to:

Virginia Tax
Office of Customer Services
P.O. Box 1115
Richmond, VA 23218-1115

Virginia tax payment plans and hardship

If you can’t pay your Virginia tax bill in full, you may want to set up a payment plan to avoid more serious collection actions. Virginia typically gives you about 30 days after your tax assessment to get a plan in place before things escalate.

Installment agreement terms and setup

You can set up a payment plan by applying online, speaking directly with the Collections Department at 804-367-8045 or contacting the Virginia Tax Teleplan option at 804-440-5100. You’ll just need your Social Security number and your five-digit bill number.

Many payment plans last up to 24 months, though you may request extended terms of up to 60 months. Remember that while a payment plan can stop more aggressive collection actions, interest will continue to accrue until you fully pay off your balance.

Undue hardship extension to pay

If your financial setback is temporary, you may be able to request an undue hardship extension. This can give you up to six months to delay payments without additional penalties. This isn’t a long-term solution, however, and you’re responsible for paying the balance afterward.

Currently not collectible (Status 53)

If your financial hardship is more severe, Virginia may place your account into “currently not collectible” status (Status 53). This essentially pauses collection efforts if the state determines you don’t have the ability to pay at the time. But this doesn’t erase the debt. Interest may still build, and your financial situation can be reviewed again later to determine whether payments should resume.

Avoiding liens and collection actions

If you fall behind on your payment plan or stop making payments altogether, your agreement can be canceled. Once that happens, the commonwealth can move forward with collection actions such as filing a tax lien, garnishing your wages or levying your bank account.

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