Introduction
Navigating through financial difficulties can significantly impact one’s ability to fulfill tax obligations. The IRS acknowledges this through its Hardship Program, designed to assist taxpayers who find themselves in severe financial distress.
This blog post will explore the qualifications necessary to be eligible for the IRS Hardship Program, often referred to as “Currently Not Collectible” status, and how one can apply for this relief.
What is the IRS Hardship Program?
The IRS Hardship Program, officially known as Currently Not Collectible (CNC) status, provides temporary relief from federal tax obligations to taxpayers experiencing severe financial hardship.
This program halts the IRS’s collection processes, such as wage garnishments or bank levies, giving taxpayers the time needed to regain financial stability without the added burden of these debts.
Defining IRS Economic Hardship
“Economic hardship” occurs when a taxpayer is unable to pay their basic living expenses while owing taxes. The IRS considers a taxpayer to be facing economic hardship if paying their tax debt would prevent them from meeting their necessary living expenses, based on standards set by the IRS that account for income, expenses, and family size.
Qualifying for the IRS Hardship Program
When determining eligibility for the IRS Hardship Program, the IRS conducts a thorough review of a taxpayer’s financial condition using Form 433-A (OIC). This form collects comprehensive details about the taxpayer’s finances, including income, expenses, debts, and assets. Here’s an expanded look at the key criteria:
-
Income Levels:
- Essential Expenses: The IRS compares your monthly income against a list of allowable living expenses. These expenses are predetermined by the IRS based on national and local standards and include necessities such as housing, food, clothing, and transportation.
- Disposable Income: After subtracting these allowable expenses from your total income, the remaining amount (if any) is considered your disposable income. If this amount is insufficient to pay down the tax debt, you may qualify for the program.
-
Asset Evaluation:
- Liquid Assets: The IRS examines whether you hold significant liquid assets that could readily be used to pay your tax debt. This includes checking and savings accounts, stocks, bonds, and possibly certain types of personal property.
- Asset Equity: Even non-liquid assets like your home or car are considered. If the equity in these assets can cover your tax debt, the IRS might not grant hardship status.
- Exempt Assets: Certain assets might be considered exempt based on their necessity for basic living or employment. For example, tools necessary for your job or a vehicle essential for transportation to work might not be counted against you.
-
Long-term Outlook:
- Duration of Hardship: The hardship must be long-term, meaning the financial situation is not expected to improve significantly in the near future. This assessment prevents the program from being used as a stop-gap for temporary financial issues.
- Future Income Potential: The IRS may also consider potential future changes in income, like upcoming retirement, in determining whether the hardship is likely to persist.
Additional Considerations:
- Compliance History: Your past compliance with tax laws, including filing returns on time and making efforts to settle debts, can influence eligibility.
- Ongoing Review: Once granted, the Hardship status isn’t permanent. The IRS periodically reviews your financial situation, usually every two years, to decide if the protections should continue.
Understanding these criteria in detail can help taxpayers assess their likelihood of qualifying for the IRS Hardship Program and prepare adequately for the application process. If you’re considering applying, it may be wise to consult with a tax professional who can provide personalized advice and assistance with the application to enhance your chances of approval.
How to File a Hardship with the IRS
Filing for hardship status with the IRS involves several critical steps:
- Gather Documentation: Compile financial records such as pay stubs, bills, rent or mortgage statements, and any records of assets.
- Complete the Necessary Forms: Form 433-A (OIC) is required to apply for CNC status. This form assesses your financial situation in detail.
- Consult a Professional: Given the complexities of tax laws and IRS procedures, consulting with a tax professional or an attorney can be invaluable.
- Submit the Application: Once all documents and forms are prepared, submit them to the IRS for review.
- Follow Up: Stay in contact with the IRS for updates and provide any additional information they might request.
Contacting the IRS Hardship Program
To get in touch with the IRS regarding the Hardship Program or for more information, taxpayers can use the IRS hardship program phone number: 800-829-1040. This line provides access to IRS representatives who can offer guidance on filing for hardship and other related queries.
Long-term Implications and Management
While the IRS Hardship Program offers temporary relief, it is crucial for taxpayers to plan for their long-term financial health. This might include adjusting budget plans, increasing income sources, and continuously monitoring their financial status to prevent future tax issues. The program does not eliminate tax debt but postpones it, allowing taxpayers to recover financially without the immediate stress of IRS collections.
Conclusion
The IRS Hardship Program is a critical tool for those facing significant financial challenges, allowing them to address immediate needs without the added pressure of federal tax debts.
Understanding what qualifies as IRS hardship, how to apply for the program, and the necessary steps involved are essential for taxpayers who find themselves in this situation.
As always, consulting with tax professionals can provide personalized advice and ensure that all procedures are correctly followed, making the process as smooth as possible.
For taxpayers grappling with severe financial difficulties, the IRS Hardship Program offers a beacon of hope, providing the necessary room to breathe and strategize financially for the future.