IRS Hardship

Dealing with the IRS is never a pleasant experience. There can be a lot of pressure from the federal government, and it can become quite intimidating. Unfortunately, most taxpayers aren’t aware of the IRS Hardship procedures that come along with the Hardship program. It creates many great opportunities for individuals that are suffering from unpaid taxes.

What is the IRS Hardship Program?

The IRS Hardship program is effective when an account goes into the ‘Currently Not Collectible’ status, according to Part 5, Chapter 16, Section 1 [IRM 5.16.1] of the Internal Revenue Manual. The IRS declares an account uncollectible if the tax payment will affect the day-to-day living expenses of the taxpayer.

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 will help you submit relevant financial information to the federal government in order to prove that you qualify for the program. We use the IRS Hardship Form 433A and 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.

If you are skeptical to disclose extensive sensitive financial information on the IRS Hardship form, you can opt and choose to fill out the online payment agreement instead.

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 their collection procedures as a means to settle your tax issues. Some of the collection methods include:

Tax Levy – While a lien protects the government’s interest in your property, a levy is when the government seizes your property on their behalf and applies it to or satisfies your tax liability via seizure and removal. The IRS has the right to levy, seize, and sell your property as long as you don’t settle, or make arrangements to settle your tax issues.
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 problems. 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 an account for up to 10 years. This 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.

IRS Installment Agreement

The IRS Installment Agreement is a payment plan option we recommend to our clients since it is one of the best ways to avoid a tax lien or tax 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, an installment agreement is a great option. Currently, the IRS offers four different types of installment agreements: guaranteed, streamlined, partial payment, and non-streamlined.

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.

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 filing requirements. The qualifying conditions to apply or be eligible for an Offer In Compromise (OIC) can seem complicated. Our expert tax consultants will help you understand the policies, application process, and eligibility criteria for an Offer in Compromise.

Understanding the Gravity of IRS Debt

Owing money to the IRS is not a rare scenario; millions of Americans find themselves entwined in the web of tax debt every year. But, understanding the severity and the potential repercussions is vital to managing your financial health.

Accrual of Penalties: The lingering debt doesn’t remain static; it accumulates penalties and interest, enlarging the owed amount over time.
Asset Seizure: Persistent non-payment or neglect can lead the IRS to take severe actions such as garnishing wages or seizing assets.
Credit Implications: Your credit score can be adversely affected by unresolved IRS debt, potentially influencing future borrowing capabilities.

Proactive Measures Against Escalating Debts

When confronted with IRS debt, adopting a proactive stance can deter the snowballing of additional charges and safeguard against detrimental financial consequences.

Open Communication: Engage in a transparent dialogue with the IRS, communicating your current financial situation and hardships if present.
Installment Agreements: For qualifying taxpayers, the IRS provides the facility to stagger the debt into manageable monthly payments.
Offer in Compromise: In certain instances, you may negotiate to settle your debt for less than the full amount owed through an offer in compromise.

Social Security As an Income Stream for IRS Hardship

Social Security often acts as the financial backbone for retirees and those with disabilities, ensuring a steady, albeit often limited, stream of income. How does the IRS view this singular income stream in light of a hardship application?

Noteworthy Points:

Exempt Status: In certain circumstances, Social Security benefits may be exempt from garnishment for tax debt.
Fixed Income Challenges: A fixed income may severely limit financial flexibility, especially in managing unforeseen expenses.

Navigating through the realities and potentialities of applying for hardship with Social Security as a lone income stream demands a nuanced exploration.

Merging Streams: IRS Hardship and Social Security

The integration of Social Security and IRS Hardship unfolds a multifaceted narrative. While Social Security may provide a financial buffer, is it sufficient to meet the criteria set by the IRS for hardship?

Analyzing Financial Capability

Essential Expenses: Demonstrating that paying tax debt would incapacitate the ability to manage necessary living expenses.
Asset Scrutiny: The IRS will likely scrutinize assets, additional income streams, and living expenses.

Understanding how Social Security income is evaluated in the context of these factors becomes pivotal in effectively navigating an IRS Hardship application.

Strategic Pathways: Navigating through IRS Hardship Applications

For those exploring the potential of securing IRS Hardship status on a Social Security income, developing a strategic pathway becomes invaluable.

Employing Strategy and Vigilance:

Accurate Documentation: Ensure meticulous documentation of all income and expenses.
Legal and Professional Guidance: Enlisting the aid of a tax professional or attorney can provide invaluable insights and guidance.

Embarking on the journey of securing IRS Hardship necessitates a keen understanding of the IRS’s evaluation process and a strategic approach in presenting a compelling case.

Looking Beyond: Financial Stability and Tax Debt Management

Securing IRS Hardship status is not the terminus but a temporary reprieve on the journey towards financial stability.

Forward Momentum:

Re-evaluation: Be prepared for periodic IRS reviews and possible status changes.
Financial Planning: Employ this period to restructure finances and explore potential avenues for managing tax debt long-term.

Understanding that IRS Hardship is a temporary safe harbor enables individuals to strategically plan and prepare for future financial voyages, ensuring that when the hardship status is lifted, they are not cast adrift into financial tumult.

Jointly Filed Taxes

When a couple files taxes jointly, they are intertwined in a fiscal partnership, which can become particularly convoluted when one partner seeks IRS Hardship.

Challenges and Considerations

Joint Liability: Both partners are usually collectively responsible for tax debts, despite IRS Hardship status.
Refund Offsets: Potential IRS seizures of future tax refunds to offset existing debt.

A thorough understanding of these elements is paramount in crafting strategic navigations through the financial predicaments that may arise.

Ripple Effects on the Non-Filing Spouse

When one spouse secures IRS Hardship status, the financial ripples often permeate, influencing their partner’s fiscal stability and obligations.

Probing the Implications:

Protecting the Non-filing Spouse: Exploring mechanisms like Innocent Spouse Relief to safeguard them from unwarranted financial burdens.
Separate Filings: Contemplating the viability of filing taxes separately in subsequent years.

Embarking on the IRS Hardship journey demands careful considerations to protect the financial stability and integrity of the non-filing spouse.

Innocent Spouse Relief: A Shield in the Fiscal Storm?

Innocent Spouse Relief often emerges as a beacon for spouses inadvertently engulfed in the tax turmoil created by their partners.

Navigating the Parameters:

Eligibility Criteria: Comprehending the stringent qualifications necessary to secure relief.
Application Process: Navigating through the intricate processes of claiming Innocent Spouse Relief.

While Innocent Spouse Relief offers a potential shield, understanding its limitations and procedural intricacies is vital.

Exploring IRS Hardship Applicability in Businesses

The fiscal struggle is not an exclusive domain of individual taxpayers; businesses too often find themselves enmeshed in the treacherous territories of tax debts. Is there a way for them to avail themselves of the reprieve that IRS Hardship provides?

Crucial Facets to Contemplate:

Operational Continuity: Ensuring business operations do not dismantle amidst financial strain.
Employee Ramifications: Navigating through maintaining employee wages and benefits amidst fiscal hardship.

Navigating through these elements necessitates a deeper dive into the IRS provisions and criteria pertaining to businesses.

Qualifying for CNC Status As a Business

Businesses, particularly smaller entities and sole proprietorships, frequently grapple with the intersection of personal and business finances. While IRS Hardship is conventionally associated with individual taxpayers, certain business structures, especially those intertwined with personal assets, might delve into a gray area.

Analyzing Potential Pathways:

Sole Proprietorships: Often, the financial fibers of sole proprietors are intertwined with their personal assets, potentially enabling access to IRS Hardship.
Limited Liability and Corporations: Larger entities, such as LLCs and corporations, typically navigate through different IRS channels for financial relief, such as negotiating installment agreements or an Offer in Compromise.

Exploring these potential pathways unfolds a tapestry that is intricate and often, necessitates personalized professional guidance.

Finding a Tax Lawyer for IRS Hardship

While all payment methods seem to be ideal, our tax consultants will use their expertise to help you choose the best option for your unique situation. If you’re facing heavy financial strain with the IRS, be sure to hire a professional tax advocate today with Victory Tax Lawyers.

IRS Hardship: Frequently Asked Questions

What is IRS Hardship?

IRS hardship refers to a situation where a taxpayer is unable to pay their tax debt due to significant financial hardship. The IRS may consider reducing or suspending collection activities if it's determined that the taxpayer is experiencing genuine financial hardship.

How do I qualify for IRS Hardship?

Qualifying for IRS hardship, typically under the status "Currently Not Collectible" (CNC), involves demonstrating that paying your tax debt would prevent you from meeting basic living expenses. The IRS will require detailed financial information, including income, expenses, and asset values.

What is the IRS Hardship Form?

The IRS utilizes Form 433-F, also known as the Collection Information Statement, to obtain a detailed account of a taxpayer's financial circumstances to evaluate financial hardship. It typically necessitates that the taxpayer meticulously document various financial aspects such as income, expenses, and assets.

What happens if I'm approved for hardship status?

If you're approved for hardship status, the IRS may temporarily delay collection efforts. It's essential to note that penalties and interest will continue to accrue on the outstanding tax debt during this period.

How long does IRS Hardship last?

Hardship status is generally temporary, and the IRS will periodically review your financial situation to determine if it has improved enough to resume collection activities.

Is it possible to establish a payment plan during a period of financial hardship?

Yes, even while experiencing financial hardship, you can suggest a payment arrangement, such as an installment agreement or an Offer in Compromise (OIC), assuming you are confident in your ability to uphold it amid your financial struggles.

Does IRS Hardship affect my credit score?

The hardship status itself doesn't directly impact your credit score, but unpaid taxes, especially if they result in a tax lien (although the IRS is currently not filing tax liens in hardship cases as per the last known policies), can negatively affect your credit.

Can the IRS seize my property while I'm under hardship?

Under typical hardship status, the IRS refrains from aggressive collection actions like seizing property. However, if your financial situation improves, the IRS can resume collection activities.

How can I apply for IRS Hardship?

You can apply for IRS hardship by submitting Form 433-F and any other required documents. It is often helpful to work with a tax professional to navigate this process and ensure all necessary information is accurately provided.

Will I still receive a tax refund under IRS Hardship?

If you're under IRS hardship status, any future federal tax refunds may be applied to your outstanding tax debt, despite your financial condition.

Can I apply for hardship for business taxes?

Yes, businesses experiencing financial hardship may also apply for relief. The IRS might provide options like Installment Agreements or the classification of Currently Not Collectible status depending on the situation. A professional tax advisor can guide businesses through the available options.

How do I prove my financial hardship to the IRS?

Typically, you'll need to provide detailed documentation about your financial situation. This might include:

Proof of income (like pay stubs or a profit and loss statement)
A list of monthly expenses
Information about assets you own
Outstanding debts

What if my hardship application is denied?

If your application is denied, you may seek to understand why and potentially appeal the decision. Consulting a tax professional could provide insights into whether appealing is viable and guide you through the process.

What are the implications of an Offer in Compromise?

An Offer in Compromise (OIC) is an arrangement where the IRS agrees to settle your tax debt for less than the full amount owed. It can impact you in several ways:

It typically requires a thorough examination of your financial situation.
Accepted OICs are public record.
You must stay in compliance with tax filings and payments for the following five years.

What if my financial situation gets worse while under an installment agreement?

If you have an installment agreement and your financial situation deteriorates, contact the IRS as soon as possible. They may be able to reevaluate your situation and adjust the agreement or potentially place you in hardship status.

Can I negotiate the amount I owe to the IRS?

Yes, through programs like the Offer in Compromise, you can negotiate to settle your tax debt for less than the full amount. However, the IRS will thoroughly examine your financial situation to ensure you genuinely cannot pay the full debt.

How does the IRS determine my ability to pay?

The IRS will review the financial information you provide, such as your income, living expenses, and asset values, to determine your ability to pay. They use national and local standards to evaluate whether your living expenses are necessary and reasonable.

Does IRS hardship apply to state tax debt?

IRS hardship statuses like Currently Not Collectible do not automatically apply to state tax debts. State taxing authorities have their own procedures for handling hardship cases, and you will need to work with them separately.

Is obtaining hardship relief feasible for several tax years?

Indeed, securing hardship relief for numerous tax years is feasible. Typically, the IRS assesses your total tax liability, encompassing all outstanding years, during the evaluation of your hardship application.

Can my hardship status be revoked?

Yes, the IRS periodically reviews the status of taxpayers under hardship. If they determine that your financial situation has improved sufficiently, they may revoke the hardship status and resume collection activities.