IRS Hardship: What You Need to Know - Tax Help USA

Navigating the complexities of tax obligations can be overwhelming, particularly when facing financial challenges. The IRS Hardship Program offers a beacon of hope for those struggling to meet their tax liabilities. This guide delves into the nuances of the program, providing essential insights and solutions for individuals grappling with tax burdens. We understand the stress associated with tax debts and aim to offer a pathway to financial relief and stability.

What Is the IRS Hardship Program?

The IRS Hardship Program, formally known as “Currently Not Collectible” (CNC) status, is a lifeline for taxpayers who find themselves in a financial bind. This program recognizes that in certain circumstances, individuals cannot fulfill their tax obligations without compromising their ability to cover essential living expenses. By granting CNC status, the IRS acknowledges the taxpayer’s situation and temporarily halts aggressive collection efforts, offering much-needed respite and time to recover financially.

What Does the IRS Consider a Hardship?

The IRS defines financial hardship as a situation where a taxpayer is unable to pay their tax debt without impinging on their ability to meet basic living expenses. The determination of hardship is not arbitrary but is based on specific criteria and guidelines set by the IRS. Here’s a detailed breakdown of what the IRS considers when evaluating a hardship case:

  1. Ability to Pay: The primary consideration is the taxpayer’s overall ability to pay the tax debt. This includes an assessment of income sources, savings, and other financial resources.
  1. Income Level: The IRS examines the taxpayer’s income level in relation to their tax debt. A key factor is whether the taxpayer’s income is sufficient to cover both the tax debt and essential living expenses.
  1. Living Expenses: The IRS compares the taxpayer’s monthly living expenses against national and local standards. These expenses include:
  • Housing and utilities
  • Food and clothing
  • Transportation costs
  • Healthcare expenses, including out-of-pocket costs
  • Current taxes
  • Court-ordered payments, such as alimony or child support
  • Education for employment or for a physically or mentally challenged child
  • Child/dependent care
  • Life insurance
  • Other expenses that can be proven as necessary for health, welfare, and production of income
  1. Asset Equity: The IRS assesses the equity in the taxpayer’s assets. This includes real estate, vehicles, bank accounts, and other property. If these assets can be liquidated to pay the tax debt without causing hardship, the IRS may not classify the situation as a hardship.
  1. Extraordinary Circumstances: The IRS may consider extraordinary circumstances that affect the taxpayer’s financial situation. These can include medical emergencies, natural disasters, or other events that have a significant impact on the taxpayer’s ability to pay.
  1. Compliance History: The taxpayer’s history of compliance with tax laws is also considered. Those with a history of timely filing and payment may be more likely to receive favorable consideration.
  1. Future Income Potential: The IRS may evaluate the taxpayer’s potential future income. If there’s a likelihood of a significant income increase, the IRS might not classify the current situation as a hardship.

How Long Does IRS Financial Hardship Last?

IRS financial hardship status is not a permanent solution but a temporary reprieve. The IRS conducts regular reviews, typically every two years, to assess whether the taxpayer’s financial situation has improved. 

If the IRS determines that the individual can now afford to pay their taxes, they may revoke the CNC status. It’s crucial for taxpayers to understand that this relief is conditional and dependent on their ongoing financial circumstances.

How to Apply for the Tax Hardship Program

The application process for the IRS Hardship Program is detailed and requires meticulous documentation. Taxpayers must submit comprehensive financial information using specific IRS forms, such as Form 433A/433F for individuals or self-employed persons or Form 433B for businesses. This process involves disclosing all assets, income sources, and monthly expenses. The goal is to provide the IRS with a clear picture of the taxpayer’s financial reality, demonstrating the inability to pay the tax debt without enduring hardship.

Hardship Tax Relief Options to Pay Off Your Back Taxes

Installment Agreement

An Installment Agreement with the IRS is a practical solution for those who can’t pay their tax debt in full but can manage smaller, regular payments. This agreement allows taxpayers to break down their debt into monthly payments, making it more manageable and less overwhelming. The amount and duration of the payments are typically based on the individual’s total debt and their ability to pay.

At TaxHelpUSA, we specialize in negotiating favorable terms for Installment Agreements. Our team of tax professionals understands the complexities of IRS guidelines and works diligently to arrange a payment plan that aligns with your financial capabilities. We handle the negotiation process, ensuring that the agreed-upon terms are fair and manageable for you.

Offer in Compromise (OIC)

The Offer in Compromise (OIC) program is a valuable option for taxpayers who are unable to pay their tax debt in full, either due to financial hardship or other extenuating circumstances. This program allows individuals to settle their tax debt for less than the total amount owed. The IRS considers several factors, including the taxpayer’s income, expenses, asset equity, and overall ability to pay, when evaluating an OIC application.

Navigating the OIC process can be challenging, but TaxHelpUSA is here to help. Our experienced tax professionals provide comprehensive assistance throughout the OIC application process. We conduct a thorough analysis of your financial situation to determine the most appropriate offer amount that the IRS is likely to accept. Our team prepares and submits all necessary documentation, advocates on your behalf, and follows up with the IRS, ensuring the best possible outcome for your case.

How Does IRS Financial Hardship Protect You?

Being under IRS financial hardship status shields individuals from aggressive collection actions such as wage garnishments, bank levies, and property seizures. However, it’s important to remember that interest and penalties on the outstanding tax debt may continue to accrue. This status provides temporary relief, not a waiver of the debt, and taxpayers should plan for eventual repayment.

Owe the IRS But Can’t Afford It? 

If you’re struggling with IRS debt and believe you qualify for hardship, TaxHelpUSA is here to assist. Our team of experienced professionals can guide you through the application process, ensuring you receive the relief you need. We understand the nuances of IRS policies and will work tirelessly to help you navigate this challenging situation.

Can I Apply for the Hardship Program on My Own?

While it’s possible to apply on your own, professional guidance can simplify the process and increase your chances of success. Navigating IRS forms and requirements can be complex, and expert assistance can be invaluable.

Can I Qualify for the Hardship Program If I Am Self-Employed?

Yes, self-employed individuals can qualify for the IRS Hardship Program. The key is to demonstrate that paying your tax debt would lead to financial hardship, regardless of your employment status.

What Documentation Do I Need to Apply for the Hardship Program?

Applying for the Hardship Program requires detailed financial documentation, including income statements, asset valuations, and comprehensive expense reports. This information helps the IRS assess your ability to pay the tax debt.