Who qualifies for tax relief?

Eligibility criteria for tax relief

At its core, IRS tax relief eligibility comes down to your income, your expenses and your assets. The IRS does not have standard guidelines for tax relief eligibility. Instead, it reviews your situation along with the amount of tax debt you owe.

The same tax debt relief options are available for both businesses and individuals, according to Stephen Weisberg, a lead tax attorney at The W Tax Group, a nationwide tax defense company. “That said, business relief is at times harder to come by depending on the status of the business and the relief requested. Both individuals and businesses are judged by their income, expenses and equity in assets,” he said.

The IRS first determines how much monthly disposable income you have and how much you have in assets. This helps determine whether and how well you can meet your basic expenses while paying off tax debt.

» LEARN: How does tax relief work?

Establishing reasonable cause

If you can’t manage your tax debt due to an extenuating circumstance — a catastrophic medical situation or a natural disaster, for example — the IRS may be willing to relieve part of your tax burden. You’ll have the burden of proof, which the IRS refers to as “reasonable cause.”

This often includes providing the IRS with proof of your situation, which can be in the form of medical bills, letters from hospitals or physicians, copies of insurance claims or photos of damage.

» MORE: Tax relief statistics

Types of tax relief available

The type of tax relief you should seek depends on your unique financial situation along with your situation with the IRS. The most common types of tax relief are installment agreements, partial pay installment agreements, offers in compromise, currently not collectible status and penalty abatement.

Installment agreements

An installment agreement is the most basic and informal type of tax relief available from the IRS. This is simply done by contacting the IRS and asking for a bit more time to pay your tax debt. Another option is to set up a monthly payment plan — typically up to six years — so that the balance is paid off in a way that’s manageable for you.

Partial pay installment agreements

Similar to the above, a partial pay installment agreement occurs over a number of months, but in most cases, you never end up paying off the entire amount of the debt owed, according to Weisberg.

Offer in compromise (OIC)

An offer in compromise lets you settle your tax debts for less than the full amount owed. The IRS takes into account your income, expenses and assets when determining eligibility. This is one of the most well-known forms of tax relief despite the fact that many people won't qualify.  If the IRS determines you can pay the full balance, an OIC will not be accepted.

Currently not collectible

For currently not collectible status, your monthly expenses must be more than your income and you cannot have significant equity in assets, Weisberg said. This type of tax relief is reserved for situations of severe financial hardship.

“If you have a serious situation where you would not be able to pay your household bills if you had to pay the IRS, you may qualify for a currently not collectible status,” Weisberg said. “You are protected from IRS collections and not required to pay the IRS anything.”

Penalty abatement

Penalty abatement allows you to request a reduction or removal of IRS penalties, like those assessed for failing to file and/or pay your taxes by the deadline. Both first-time penalty abatement and a reasonable cause penalty abatement require you to provide proof of financial difficulty in order for your request to be accepted.

» MORE: Pros and cons of IRS payment plans

How to apply for tax relief

To work directly with the IRS on a tax relief payment plan, you can apply on the IRS website or visit your local Taxpayer Assistance Center (find it here). While simple requests to extend the payment deadline can move relatively quickly, a more complicated request like an offer in compromise could take six months or more to process, Weisberg said. Instead of working directly with the IRS, you could contact a tax attorney or work with a tax relief company.

4 common misconceptions about tax relief

Below, we’ll take a look at some of the most pervasive myths you might have in your mind if you have to approach the IRS about relieving or reducing your tax burden.

1. MYTH: Seeking tax relief will get you out of paying taxes

This is only true in very few cases. Most forms of tax relief from the IRS come in the form of extending the amount of time you have to pay your tax debt, reducing or eliminating penalties due to hardship or negotiating settlements if you have a severe and enduring financial difficulty.

2. MYTH: The only way to get tax relief is to go directly to the IRS

There’s logic in going directly to the source — the IRS — in order to tackle tax debt. But if you don’t feel comfortable doing that, a tax attorney can help you make your case for reasonable cause or help you determine your best course of action. In addition, there are plenty of tax relief companies you can choose from that can help you negotiate tax relief with the IRS.

3. MYTH: Filing for bankruptcy will eliminate your tax debt

Most people are under the impression that bankruptcy solves all financial woes. In reality, there are strict rules about which tax debts can be discharged in Chapter 7 or Chapter 13 bankruptcy. It's important to note that recent tax debts are very rarely discharged.

4. MYTH: Your tax debt will eventually go away if you ignore it

This is never the case! Ignoring your tax debt will only ensure one thing: Your tax bill will continue to grow. When you fail to file or pay your taxes and don’t seek some sort of resolution or negotiation with the IRS, it will continue to assess penalties on your account.

These penalties and fees grow steeper the longer you let the problem persist. They can even turn into wage garnishments and the eventual seizure of your assets.

» RELATED: How to file back taxes