Tax hardship is defined as an inability to cover financial or tax obligations. The IRS provides guidelines that outline how taxpayers can qualify for a tax hardship and receive assistance from the IRS.
This article will explain the eligibility criteria for a tax hardship, examples of acceptable and unacceptable financial states that qualify as hardships, what information to provide when applying for a tax hardship with the IRS, and what happens after qualifying for an IRS tax hardship.
The IRS Hardship Rules: What Are They?
The IRS hardship rules are designed to provide relief to taxpayers who cannot pay their federal taxes due to an inability to financially manage their current liability. This status can suspend typical IRS collection methods, such as levies on income, bank account seizures, and liens on personal property.
When an account is considered CNC (currently not collectible), the IRS will generally take no more action to settle the taxes owed and the taxpayer can focus on their financial situation rather than fear further pressure from the IRS. However, this status is not permanent and may be dismissed if the taxpayer’s tax liability returns to a manageable level. Knowing your options regarding taxpayer hardships is essential for taxpayers experiencing difficulty paying their federal tax due.
CNC (currently not collectible)
CNC, or Currently Not Collectible, is a status assigned by the IRS to taxpayers whose financial situation means they are unable to pay their back taxes. This status allows them to be temporarily excused from paying their unpaid taxes and puts a hold on all collection activities.
However, CNC does not eliminate the underlying tax debt and the taxpayer may have to make payments at a later date once their financial standing improves. Additionally, interest and penalties will still accrue on the tax debt during this period.
What Is IRS Tax Levy?
An IRS tax levy is the legal seizure of a taxpayer’s assets by the IRS to satisfy unpaid taxes. When an IRS tax levy is issued, it can encompass the taxpayer’s wages, bank accounts, Social Security benefits, and other sources of income until the debt is fully satisfied or a payment plan is arranged. A taxpayer can appeal a tax levy if they believe it has been issued unfairly or is causing undue financial hardship.
What Is IRS Tax Lien?
A tax lien is a legal claim against a taxpayer’s property that is put in place by the IRS when an individual owes back taxes. It serves as a warning to potential creditors that the taxpayer will have to pay their debt before any other creditors can be paid. A tax lien may restrict the taxpayer’s ability to take out new loans, sell or transfer assets, and even increase the number of penalties and interest they owe on their taxes. If unpaid taxes remain, the IRS can seize the assets of the taxpayer such as real estate or vehicles.
Does The IRS Offer A Hardship Program?
The IRS offers a hardship program called an Offer in Compromise (OIC). This program is available to individuals who are unable to pay their full tax debt or for whom doing so would constitute an undue burden. Before qualifying for an OIC, you must have filed all required returns and made all required estimated tax payments for the current year. To remain eligible for the program, taxpayers must comply with all future filing and payment requirements.
An Offer in Compromise can be a useful alternative if you find yourself unable to pay the full amount of taxes owed and wish to avoid accruing additional penalties and interest. An accepted Offer in Compromise gives taxpayers the chance to lessen their financial burden, providing them with increased flexibility as they strive to satisfy their tax debt.
Qualifying For A Tax Hardship With The IRS
In order to qualify for a tax hardship, taxpayers must demonstrate an inability to pay taxes due to exceptional circumstances. Eligibility criteria can vary based on the type of hardship, such as:
- Unavoidable expenses such as medical bills or job loss.
- Unusual Circumstances such as disability, natural disaster, death of dependent or military service.
Examples of acceptable financial states that may qualify for a tax hardship include being unemployed and lacking the necessary funds to cover taxes due, being in debt due to overwhelming medical bills, or having insufficient funds after supporting dependents. Examples of unacceptable financial states that do not qualify for a tax hardship are voluntary termination of employment leading to inadequate funds for paying taxes, failure to make timely payment arrangements with the IRS resulting in additional penalties, or selling assets to pay taxes still lacking sufficient funds.
How Long Does IRS Hardship Last?
IRS Hardship status is intended to provide temporary relief from paying back taxes. Generally, taxpayers can benefit from the program for up to 10 years; however, if your income has risen substantially since enrollment, the IRS may review and remove you from the program.
After ten years, the Internal Revenue Service will erase any back taxes from their records no matter whether an individual is financially able to repay them or not. Therefore, taxpayers should take advantage of this program as soon as possible and make sure they remain in compliance with their reporting requirements.
Ask For Help From A Tax Professional
Dealing with IRS financial hardship can feel overwhelming and it’s important to have a knowledgeable resource at your disposal. The services of a professional tax specialist can help you resolve the issue quickly, eliminate costly mistakes, and avoid future problems. They are familiar with federal and state procedures, deadlines, regulations, and laws. Click here to learn more about Ideal Tax. They are tax professionals with specialized experience and knowledge in helping individuals navigate the complexities of tax-related issues.
Working with a tax consultant or CPA will give you the assurance that experienced professionals are on your side and working hard to resolve your situation.
As a final thought to consider, an IRS hardship can be difficult to qualify for and often requires detailed proof of financial distress. However, if you are faced with hardship, it is important to remember that help from the Internal Revenue Service is available and could enable you to regain a better financial position. With the necessary documents in hand, speak with a qualified tax preparer or accountant that can guide you through the required steps for your unique situation.Be sure to research all available options before deciding what path is right for your specific needs. The Internal Revenue Service provides support when difficulty arises and their guidance could make all the difference in securing your financial stability and well-being during times of struggle.