November 20, 2020 Show 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 ProgramThe 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 RequirementsTo 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:
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 RulesIf 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:
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:
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 OptionsQualifying 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. How do you declare a hardship?To prove tax hardship to the IRS, you will need to submit your financial information to the federal government. This is done using Form 433A/433F (for individuals or self-employed) or Form 433B (for qualifying corporations or partnerships).
What happens when you claim hardship?A hardship distribution is a withdrawal from a participant's elective deferral account made because of an immediate and heavy financial need, and limited to the amount necessary to satisfy that financial need. The money is taxed to the participant and is not paid back to the borrower's account.
What is hardship status?IRS Definition
A hardship exists if a taxpayer is unable to pay reasonable basic living expenses.
How do I ask for forgiveness from the IRS?Submit Your Application
Complete an application package: Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms. Form 656(s) – you must submit individual and business tax debt (Corporation/ LLC/ Partnership) on separate Forms 656.
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