IRS Hardship Program

What Is the IRS Hardship Program?

The IRS does not have a specific “hardship program” per se. Usually, when people use the term ‘IRS hardship program’ or ‘tax forgiveness program,’ they’re referring to the various tax relief options designed by the IRS to help taxpayers manage their tax debt.

Popular IRS hardship options include installment agreements which allow you to pay off your tax debt in manageable, smaller monthly payments; an Offer in Compromise, which gives you the option to settle your tax debt for less than what you originally owe; and Currently Not Collectible (CNC) status, which is a temporary hardship status that pauses all IRS collection efforts if you can prove financial hardship.

Each of these options comes with specific requirements and eligibility rules. Usually, approval by the IRS for tax relief of any kind is neither straightforward nor guaranteed. However, if you’re successful, it can provide significant relief, particularly if you’ve been struggling to settle your back taxes.

What Are the IRS Hardship Rules?

Once your account has been classified as Currently Not Collectible (CNC) under the IRS Hardship program, the IRS will no longer continue its collection procedures as a means to settle your tax issues. Some of the collection methods include:

• Tax Levy – an IRS tax levy is a legal process by which the IRS seizes a taxpayer’s property or assets to satisfy unpaid tax debts. Unlike a tax lien, which is a claim against property as security for a debt, a levy actually takes the property or funds to pay off the debt. A levy is one of the IRS’s most aggressive collection actions and typically follows a series of warnings and IRS notices to the taxpayer.
• Garnished Wages – also referred to as wage levies, the IRS has the power to take any amount of your weekly or monthly wages and apply it towards your tax payments. Your wages will continue to be levied until your tax liability has been paid off or you set up an alternative method to pay off your taxes.

The tax hardship rules can apply to a tax account for up to 10 years. Also known as the IRS Collection Statute Expiration Date (CSED), it is generally the amount of time the IRS has to collect back taxes before the statute of limitations is enforced. Your tax information may be reviewed every 2 years in order for the IRS to ensure that you still meet all of the qualifications for the Hardship program.

Who Qualifies for the IRS Forgiveness Program?

If you’re struggling with tax debt, you may be eligible for the IRS tax forgiveness program. Both individuals and businesses facing significant financial hardship can apply for relief through various IRS programs.

Eligibility requirements for the program differ depending on whether you’re applying as an individual or a business:

Eligibility for Individuals

If you’re applying as an individual, you must be able to demonstrate with proof to the IRS that paying your tax debt would leave you in severe financial hardship and unable to cover your basic living expenses like housing, food, and medical care. To do so, you’d need to submit Form 433-A or Form 433-F, both of which outlines your income, assets, and expenses.

The IRS generally looks at several factors when determining eligibility for debt forgiveness. And while approval is not always guaranteed, those who meet the following conditions are more likely to qualify:

• The taxpayer has a tax debt of $50,000 or less
• An annual income lower than $100,000 for individuals (or $200,000 for those married)
• Must be able to show proof of extreme economic hardship
• Must have filed all previous tax returns (the IRS won’t consider your application if you haven’t filed all required returns and made any estimated tax payments).
• Compliance with all prior

Eligibility for Businesses

The CNC status can be especially beneficial for businesses experiencing cash flow issues that make it challenging to meet payroll, pay suppliers, or cover other critical operational costs. Here’s a closer look at how CNC status works for businesses:

If you’re applying as a business, you’ll need to prove that paying your tax debt will cause you severe financial hardship and prevent you from being able to carry on your critical business operations, like paying your staff, managing your operations, or paying your rent. This usually involves submitting detailed financial information on IRS Form 433-B, including a comprehensive overview of the business’s income, assets, liabilities, and monthly expenses. The IRS will assess whether the business’s income is sufficient to cover necessary operational expenses, including payroll, rent, utilities, and supplies.

If the business owns valuable assets, the IRS may consider liquidating those assets before granting CNC status. However, if selling assets would impair the business’s ability to operate effectively, CNC status may still be granted. For example, if a restaurant applies for CNC status, the IRS might avoid forcing the sale of essential kitchen equipment that’s necessary for generating income.

How Do I Qualify for the IRS Hardship Program?

We understand that clients applying for the IRS Hardship program are in a difficult situation and are looking for the simplest solution to their tax problems. Our tax experts at Victory Tax Lawyers will help you submit relevant financial information to the federal government in order to prove that you qualify for the program. We use IRS Hardship Form 433A, IRS Financial Hardship Form 433F (individuals or self-employed), and Form 433B (corporations/partnerships). The statements will report the following information:

• A list of everything the taxpayer owns, including bank account information, retirement savings, investment portfolios, vehicles, property, life insurance, etc;
• Market value for all assets;
• Income statements for the past 3 months;
• Expense statements for the past 3 months;
• Reporting a 3-month average income and expenses based on category.

How Do I Qualify For An IRS Hardship Online?

Applying for hardship status typically requires you to disclose in detail your financial information. If you are skeptical about disclosing extensive sensitive financial information on the IRS Hardship form, you can choose to fill out the online payment agreement instead. Both individuals and businesses can apply for a payment plan.

Eligibility for Individuals

Your tax situation determines the payment option that you can qualify for, whether full payment, short-term payment (180 days or less), or long-term payment (monthly installments). You may qualify for an online payment plan if:

• You owe $50,000 or less in combined tax, penalties, and interest for a long-term plan
• You owe less than $100,000 for a short-term plan
• You have filed all required tax returns

Eligibility for Businesses

Businesses only have two options available to them: full payment and long-term payment. A business can apply online for the long-term payment plan if:

• They owe $25,000 or less in combined tax, penalties, and interest
• They have filed all required tax returns

How to File Hardship With the IRS

Filing for hardship with the IRS involves a series of steps that are best taken under the guidance of our tax lawyers to be sure you’re doing them correctly. The steps include the following:

1. Gather financial documents, including recent bank statements, pay stubs, monthly expenses, and any other documents showing your financial situation.
2. Contact the IRS. You can call them directly, but it’s better to work with a tax professional who can help you.
3. Provide your financial information by filling out Form 433-A (for individuals) or Form 433-F. These forms show your income, assets, and expenses.
4. Submit your request by sending in the completed forms and documents. The IRS will review your case to determine if you qualify for CNC status.
5. Wait for approval. If approved, the IRS will temporarily stop collection actions like wage garnishments or bank levies. Interest and penalties may still accumulate, but they won’t pursue immediate collection. The IRS may review your case annually to see if your financial situation has improved.

What Are the IRS Hardship Options?

You can qualify for tax forgiveness through several pathways, with each having its pros and cons. If you’re not sure of the best option for you, always remember your tax attorney is your ally in ensuring you get the most favorable outcome unique to your case.

1. IRS Installment Agreement

The IRS Installment Agreement is an IRS payment plan option we recommend to our clients since it is one of the best ways to avoid a tax lien or levy, under certain circumstances. The Installment Agreement allows you to pay your tax problems over an extended period of time. You will continue to accumulate interest and fees until the entire balance is paid or expires.

While it is always best to pay off your taxes on time, if you find yourself unable to clear your tax bill, an installment agreement is a great option. Currently, the IRS offers four different types of installment agreements: guaranteed, streamlined, partial payment, and non-streamlined. To know which of the options is most suitable for you, and to maximize that option, it’s best to consult with our experienced IRS payment plan lawyer to guide you.

2. IRS Settlement

Our tax lawyers often recommend the IRS Settlement method – also known as an Offer in Compromise – over the IRS Hardship Program. The IRS Settlement is for people who do not have a way to pay off their taxes in the foreseeable future. We help our clients propose an appropriate amount to the IRS to pay off their taxes. If the IRS accepts this proposed amount, they compromise and settle the issue at the new proposed amount, in essence, offering the taxpayer a fresh start.

The goal of an Offer in Compromise is for both parties, the taxpayer and the federal government, to come to terms in both their interests. The program aims to promote open acceptance of any and all subsequent payment and tax return filing requirements. The qualifying conditions to apply or be eligible for an Offer In Compromise (OIC) can seem complicated, but our expert tax consultants will help you understand the policies, application process, and eligibility criteria for an Offer in Compromise.

3. Currently Not Collectible (CNC)

If you’re unable to pay your tax debt due to economic hardship, the IRS may classify your account as Currently Not Collectible (CNC). A taxpayer is considered to have a financial hardship if IRS collection actions would prevent them from affording basic necessities such as housing, food, and medical care. The CNC status temporarily pauses collection activities like wage garnishments and bank levies, although interest and penalties are not paused, so they will continue to accrue.

Since this is a temporary arrangement, the IRS will periodically review your financial situation and resume collection efforts if it ascertains that your circumstances have improved. To confirm this, you’d have to file a statement showing the IRS your current income and expenses. That information is what the IRS uses to decide if and when they can resume collection activities again.

What Happens if You Don’t Qualify for the IRS Hardship Program?

If you don’t qualify for the IRS Hardship Program, officially known as “Currently Not Collectible” (CNC) status, the IRS may continue with collection actions to recover the unpaid tax debt. This can include actions such as wage garnishments, bank levies, or even property liens.

Interest and penalties will continue to accrue on your unpaid tax balance, meaning that the debt will grow over time if left unaddressed. The accumulation of these additional charges can make the debt harder to pay off, adding a considerable financial burden.

In some cases, the IRS may file a federal tax lien against your property, which, although it doesn’t directly impact your credit score, can create complications if you try to sell or refinance assets like a home. Liens can also indirectly affect your credit by making it difficult to secure loans or other financing.

The IRS may also apply any future tax refunds to your outstanding debt until it is fully paid. This can reduce the balance gradually but prevents you from receiving any tax refunds directly in the meantime, which can sometimes provide a path toward resolution without escalating collection efforts.

To avoid all these potential consequences, you should consult with our tax lawyers to help you explore the tax relief options you qualify for. We can also negotiate with the IRS on your behalf or challenge the debt if there are inaccuracies.

How to Prevent Growing Tax Debts

To prevent your individual or business tax debt from escalating with the IRS, taking proactive steps can make a big difference. Here are some straightforward ways to stay on top of your taxes:

1. Always file your tax return on time, even if you can’t pay in full. Late filing leads to extra penalties, which add to your debt.
2. Track your income and expenses. Keep clear records, especially if you have multiple sources of income or deductions. This helps you file accurately and avoid surprises.
3. If you owe taxes, pay what you can, even if it’s not the full amount. This reduces the balance and cuts down on interest and penalties.
4. If paying in full isn’t an option, apply for an IRS payment plan. This allows you to make manageable monthly payments and shows the IRS you’re committed to paying.
5. Review withholding and estimated payments to make sure the amount withheld from your paycheck is correct, or make estimated tax payments if you’re self-employed. Adjusting these can prevent large tax bills.
6. If you’re struggling, contact the IRS right away. They can help you explore options, like temporary delay of payments, without penalty for avoiding contact.
7. Seek professional help. A tax professional can provide advice, help negotiate with the IRS, and suggest options you might not be aware of.

Social Security as an Income Stream for IRS Hardship

When Social Security is the taxpayer’s only income, the IRS will closely examine if it’s adequate for basic necessities like housing, utilities, food, and healthcare. If the IRS determines that using a portion of this income to pay the tax debt would prevent the taxpayer from covering these necessary expenses, it may be more likely to grant hardship status.

However, even if hardship status is granted, it’s important to note that interest and penalties on the debt continue to accrue. Additionally, the IRS may still levy Social Security income under certain circumstances if no other relief options are arranged.

How Does the IRS Hardship Program Affect a Non-Filing Spouse?

When a couple who files taxes jointly applies for the IRS Hardship Program, or Currently Not Collectible (CNC) status, it can have specific implications for both spouses, even if only one spouse is primarily responsible for the tax debt. Here’s how the application can affect a non-filing spouse when filing jointly:

In a joint filing situation, the IRS will assess the household’s combined income and expenses to determine whether CNC status is appropriate. This means that both spouses’ incomes and shared expenses are factored into the evaluation. If the household income is deemed sufficient to cover living expenses and a portion of the tax debt, the IRS may deny the CNC application.

If the couple is granted CNC status, collection efforts are temporarily halted, but any future joint tax refunds will still be applied toward the outstanding debt. This means that a non-filing spouse could lose their portion of a refund due to the debt. However, they may file Form 8379, “Injured Spouse Allocation,” to request a refund of their share, potentially allowing them to receive the part of the refund not linked to the tax debt.

Finding a Tax Lawyer for IRS Hardship

The IRS hardship program and the CNC status can come through for you if you can prove that paying your tax debts will cause substantial financial difficulty for you. But getting the CNC status is no child’s play. You must be able to demonstrate that you qualify and follow all the applicable rules. That’s why the best way to go about it is to work with our experienced tax lawyers. We already understand how the program works; we only need to assess your financial and tax situation to help you maximize the program. Take the right first step today by booking a free consultation with us and let’s get started immediately.