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IRS Financial Hardship Rules & Requirements

Owing money to the Internal Revenue Service (IRS) is never fun, but it can be especially stressful if you’re already having problems paying your bills. Ignoring your tax debt, however, will only make matters worse. Thankfully, there is help. If you’re struggling to make ends meet and can’t pay your taxes, you may qualify for IRS financial hardship.

IRS Financial Hardship Program

The IRS financial hardship program is designed to assist taxpayers who would be unable to meet their necessary living expenses if required to pay their tax bills. To receive assistance, you must provide proof that you are facing a hardship. Upon approval, your account is then placed in a “Currently Not Collectible” (CNC) status. This provides temporary relief from IRS collection actions and you are not required to make payments.

IRS Financial Hardship Requirements

To qualify for an IRS hardship, you will need to provide financial information to prove you are unable to pay your taxes. For individual taxpayers and those who are self-employed, this is done with the IRS Collection Information Statement, Form 433-A or 433-F. If you are requesting relief for business tax debt, you will need to use Form 433-B. On the form, you will need to provide the following details:

  • Contact information
  • Social Security number (yourself and others in your home)
  • Dependent’s names
  • Employment information
  • Financial institutions (checking, savings, retirement accounts, etc.)
  • List of assets owned (vehicles, real estate, life insurance, etc.)
  • Other income (alimony, child support, pensions, etc.)
  • Active legal cases or pending lawsuits
  • Monthly expenditures (utilities, rent, food, and other expenses)

The IRS will also require income and spending statements for at least the last three months. You must also provide copies of all your monthly bills and pay stubs, as well as your last tax return.

IRS Hardship Rules

If IRS determines that you do not have enough disposable income (total monthly income minus total allowable living expenses) to pay your taxes, you will be placed in a CNC status. Under this hardship program, you will be protected from various IRS collection actions, including:

  • Wage Garnishment – Any active wage levies will cease since you do not have sufficient income to pay off your tax debt.
  • Tax Levies – Efforts to seize or sell your assets will stop, and all tax levies will be released.

Your tax debt, however, will not be forgiven immediately. In fact, penalties and interest will continue to accrue. You may also be subjected to other IRS actions and requirements, such as:

  • Tax Liens – If you owe more than $10,000, the IRS will likely place a tax lien against your property to secure the debt.
  • Loss of Tax Refunds – The IRS may seize your tax refunds to help satisfy your debt.
  • Additional Financial Reviews – You may be required to submit financial information every two years to prove that your financial situation has not improved.

The IRS has 10 years to collect back taxes before the statute of limitations is enforced. If you remain in a CNC status during that time, your tax debt will eventually be forgiven. If your financial situation improves, however, the IRS will revoke your hardship status. You will then need to make arrangements to pay off your tax debt, including interest and penalties.

Other Tax Relief Options

Qualifying for an IRS financial hardship is not guaranteed. Even if you do qualify, it does not automatically cover you for subsequent tax years. Each year is considered separately. You must reapply for any new tax debt acquired. If you are not approved for CNC status, don’t panic. You still have other tax relief options that can help you handle your unpaid taxes.

IRS Payment Plans – This is one of the best ways to pay off your taxes. You can get into affordable monthly payments that are spread out over time. An installment agreement can also help you avoid tax liens and levies. If you continue to pay on time, you will also avoid additional failure to pay penalties.

Offer in Compromise – If the IRS believes you are unable to pay the full amount in the immediate future, they may agree to a tax settlement. In some cases, your tax debt is significantly reduced or even eliminated. 

At Tax Defense Network, we can help you apply for an IRS financial hardship or help you get into other various tax relief programs. To explore your available options, schedule a free consultation today.