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How to Apply For an IRS Hardship

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Dealing with tax debt can be overwhelming, especially if you are struggling financially. Fortunately, the IRS offers various ways for you to address your back taxes. One of these options is the IRS hardship program.

What is The IRS Hardship Program?

The IRS hardship program is designed to assist taxpayers who are unable to pay their tax debt. Also known as Currently Not Collectible (CNC), the hardship program essentially places a hold on any collection actions. This includes wage garnishment, bank levies, and property seizures. If you owe more than $10,000, however, the IRS may still file a federal tax lien. Once you’re in a CNC status, you will not be required to make any payments toward your existing tax debt balance, as well. The interest and penalty fees, unfortunately, will continue to accumulate.

Your eligibility for the hardship program will be reviewed by the IRS every year. If you remain in the program for more than 10 years (statute of limitations), the tax debt will be forgiven. Should your financial situation change before the statute of limitations runs out, however, you’ll be expected to pay not only the past due balance, but also all penalty and interest fees.

It’s important to know that the IRS will take any future tax refunds you may receive while in the program. These funds will be applied to your outstanding balance.

How to Apply For The IRS Hardship Program

To apply for IRS hardship status, you’ll need to submit Form 433-A (individuals), 433-F (self-employed), or 433-B (corporations and partnerships). This is known as a Collection Information Statement form. On this form, you’ll be required to list everything you own, as well as the fair market value (FMV) of each item. Additionally, you’ll need to submit income and spending statements for the last three (3) months.

IRS Financial Hardship Qualifications

The IRS will review the data provided in your Collection Information Statement form to determine if you are eligible for an IRS financial hardship. Generally, you must meet the following to qualify:

  • Annual income under $84,000
  • Little to no funds available after covering your basic living expenses that fall within the IRS guidelines. Living expenses typically include:
    • Food
    • Clothing
    • Household supplies
    • Personal care products
    • Health care expenses
    • Housing fees (rent or mortgage)
    • Utilities
    • Transportation costs

You must show that you have little or no disposable income (total monthly income minus total allowable living expenses) before the IRS will approve your hardship status. If you have any disposable income, you will be expected to use that to pay toward your existing tax debt.

Other Tax Relief Options

If you do not qualify for a financial hardship with the IRS, there are other ways to pay off your back taxes.  

IRS Payment Plans

An IRS payment plan allows you to pay off your tax debt over time. Depending on your situation, you may qualify for a short-term (up to 180 days) and/or long-term agreement. You may apply for a payment plan by phone, mail, or online. There are setup fees associated with long-term plans. Both agreements, however, will continue to accrue penalties and interest until the balance is paid in full. Once you are approved for a payment plan, collection actions will cease, as long as you continue to make your payments on time.

Offer in Compromise

An Offer in Compromise (OIC) allows you to settle your tax debt for less than you. It’s about as close as you can get to tax forgiveness. Unlike payment plans, however, the process for getting approved for an OIC is much more difficult. The IRS will generally consider an OIC if one of the following is true:

  • The IRS made an error in determining the amount you owe.
  • They don’t believe that they can fully collect the amount owed (you don’t have enough assets or income to cover the debt).
  • Paying your back taxes would cause extreme financial hardship.

Additionally, the IRS will only consider your OIC if you are up to date on all tax return filings. You must also meet the following requirements:

  • Be current on all estimated tax payments for the year (if applicable)
  • No open bankruptcy proceedings
  • Not currently being audited by the IRS
  • No open innocent spouse claims
  • Your case has not been sent to the Department of Justice
  • Make all required federal tax deposits for the quarter (business owners)

You’ll also need to include at least one tax bill with your offer and the initial payment (this is based on the amount of your offer).

At Tax Defense Network, we can help you determine your eligibility for the IRS hardship program and other tax relief programs, such as payment plans and OIC. To schedule your free, no-commitment consultation, call 855-476-6920 today!