If you want to fully discharge your tax debt, you must have made your returns on time. However, fully discharging taxes that are from a return that was filed late is not possible. Tardy tax returns is likened to tax evasion; blaming a poor memory is no good, either. This is why it is not possible to obtain a full discharge if your returns are late. However, you may qualify for other forms of help from the IRS.
Late taxes can be partially discharged through an Offer in Compromise. At present, there are three types of compromises your can obtain from the IRS. The first type is where some severe hardship prevents you from paying your taxes in full. Hardship would include things like being laid off, serious illness, death of the breadwinner etc that threatens your ability to pay for basic needs like food, shelter, medicine and child support. Credit card payments or school tuition payments do not count and will not win you any clemency from the government.
The second kind of Offer in Compromise involves an error in calculating your taxes or in the amount that is actually your liability (a part of your taxes belong to someone else). This is the most challenging of the three kinds to prove since you basically have to explain to the IRS that they made an error and that you are better at doing your taxes than they are. If you can show that a particular part of your tax liability is, in fact, someone else’s, you may be allowed to pay less than what you owe.
The third type of Offer in Compromise is where you are unable to pay your full taxes. The IRS will evaluate your total assets and how much money you are bringing home every week and determine exactly how much money they can expect to collect from you, minus living expenses. If your nett income is less than your tax debt, you can either pay off your debt in instalments or pay a reduced amount that you can afford. While discharging taxes filed late is out of the question, the IRS will be more than willing to work with you when it comes to reducing your tax burden.
So totally discharging your tax debt is not possible if your tax returns are late. Discharging taxes filed late is banned by the IRS, but if you respond quickly to your notices and talk to them about what you can do, you should be able tor arrive at an equitable solution.