When you owe taxes to the federal government, life can become daunting. The IRS applies significant pressure on taxpayers to pay back the debt they owe, even when their financial situation is difficult. You could receive a property lien or tax levy by the federal government, get your bank accounts cleared, or get your wages garnished to pay back tax debts.
Most taxpayers are unaware that there is a way to stop IRS penalties if they are facing economic hardship. The IRS introduced a hardship program that allows individuals going through financial hardship to apply for ‘currently not collectible‘ or ‘uncollectible’ status.
If you qualify for the IRS hardship program, the IRS cannot place a lien or levy on your property or take money from your bank accounts for the tax debt that you owe. To apply for this program, you will need to submit evidence supporting your financial hardship. An experienced tax attorney can help you with this process.
Ronald Arthur Stearns Sr. PLLC.
Ronald Arthur Stearns Sr. PLLC. has significant experience dealing with the IRS and understands the hardships faced by those with tax debt. Life situations change and paying back taxes is difficult. We want to help ease the stress and turmoil you are facing by applying for the IRS hardship program and getting your tax relief.
When you are up against the IRS, you need an experienced tax attorney by your side. Ronald Arthur Stearns Sr. PLLC. has been helping Texas clients for over 26 years with all tax-related issues, including applying for hardship status, getting a tax extension, negotiating an IRS settlement, and representing clients in audits.
Contact our law firm today at 210-853-2135 to speak about your case.
What is The IRS Hardship Program?
The IRS hardship program, also known as ‘currently not collectible’ status (CNC), offers relief to citizens who cannot pay back their tax debt. In a normal situation, when you owe a tax debt to the federal government, they reserve the right to garnish your wages, seize your property, and take money from your bank accounts.
However, if you qualify for the IRS hardship program, they are prohibited from doing so. The IRS hardship program requires you to prove that you could not meet your necessary living expenses if you had to pay tax debt each month.
Under the hardship program, or CNC status, you are still required to pay back taxes you owe under the financial hardship program, and the government can still apply penalties and interest. However, taking part in this program prevents them from using harsh measures to get the money back.
What Does The IRS Consider a Hardship?
To qualify for the IRS hardship program, the applicant must prove that they could not pay for allowable or reasonable living expenses if they had to pay back tax debt. So, if you have just enough money to pay for your day-to-day costs and no extra money to pay back taxes, you may qualify for the hardship program.
Although there are no set rules on who qualifies for the hardship program, those with an annual income of less than $84,000 and who have barely any income left to pay for taxes will qualify. The IRS will also check whether your living expenses fall within the “Collection Financial Standards”. Examples of what the IRS considers allowable living expenses include:
- Food – Groceries, snacks, restaurants, and delivery of food.
- Housekeeping supplies – Cleaning, laundry, stationery, and postage costs.
- Personal care products – Haircare, oral health, shaving, bath, and electronic devices.
- Apparel and services – Clothes and clothing repair.
- Miscellaneous – Credit card payments, bank charges, school supplies, and other costs that exceed the Collection Financial Standards.
If you cannot pay for these expenses because of debt and you have sufficient information to prove your current financial status and hardship, you can qualify for the IRS hardship program.
Applying For IRS Hardship Status
To apply for hardship status, you must submit an IRS form containing your financial information to the government. Self-employed individuals and regular taxpayers can apply using the Collection Information Statement, Form 433F/433A, and partnerships or corporations can apply using Form 433B.
You must also provide supporting documents and information regarding your income, expenses, and liability. The information the IRS requires includes:
- A comprehensive list of all personal property and assets that you own and their market value, including bank accounts, savings funds, property, vehicles, and real estate.
- Financial and bank information, including liquid assets and bank statements.
- Employment information.
- Information on legal activities against you, such as bank levies or collection activities.
- Income and spending statements.
- Income and expenses average report.
Filling out a Collection Information Statement and supplying supporting documentation can be quite complicated. You may also be worried about submitting the wrong information or disclosing sensitive information about your finances.
The best way to apply for this program is with the help of an experienced tax attorney. They can gather information on your behalf and help you fill out the Collection Information Statement.
Can The IRS Still Impose Penalties on The Hardship Program?
When the IRS determines you are in financial hardship and that you qualify for the IRS hardship program, they cannot garnish your wages, clear your bank account, apply a tax levy, or a tax lien on your property to recover tax debt.
However, they still reserve the right to apply penalties and fines. The type of penalties they apply during uncollectible status is usually for late filing of taxes and failing to pay your tax bill.
Failure To File
Failing to file your tax return by the return date or an extended date can lead to the following penalties:
- Extra charges each month that the tax return is late, up to 5 months.
- 5% of your unpaid taxes will be reported.
Failure To Pay
Failing to pay the tax that you owe, as provided in your tax return, by the due date can lead to the following penalties:
- A penalty of 5% of the unpaid tax. If you have agreed on an installment period, this will reduce to 0.25%.
- 1% of the unpaid tax for failure to pay within 10 days of a Notice of Intent to Levy.
- Recurring penalties each month until the balance is paid in full or 25%.
Negatives of The IRS Hardship Program
Although the hardship program offers some relief to taxpayers, it does not offer complete financial freedom. The IRS is limited in what they can do while you are under CNC status. However, you still owe back taxes that must be paid within the specified time period. The IRS may use other methods to ensure you pay back taxes, including:
- Applying interest and penalties to your tax debt.
- Keeping tax refunds they owe you.
- Review your financial situation every year to assess whether you should be taken out of the hardship program.
- Filing a Notice of Federal Tax Lien, which can make it difficult to sell assets and affect your credit rating.
If you are facing financial hardship, this program is a great way to buy yourself some time while you figure out a payment plan or potentially apply for debt forgiveness. However, it is vital that you speak with an experienced tax attorney if you are facing significant debt and cannot pay for basic living expenses. They can assess your tax program and try to set up an installment agreement on your behalf or apply for forgiveness.
Offer in Compromise
If you qualify for the IRS hardship program, you may also qualify for an offer in compromise (OIC). This program allows taxpayers to apply for a reduction in their tax debt if they can prove that the debt is unreasonable in their financial circumstances. Taxpayers can come to an agreement with the IRS on a payment plan that fits their financial situation, or a smaller lump sum payment.
Offer in compromise is a more permanent relief method than the hardship program and allows you to pay a more affordable rate. You will need to apply to this program separately, which can be done with the help of a tax professional, such as Ronald Arthur Stearns Sr.
Contact Ronald Arthur Stearns Sr. PLLC. Today!
The IRS makes some allowances for individuals experiencing significant financial hardship. To qualify for currently not collectible status, you must prove using supporting documentation that you are experiencing significant financial hardship and cannot afford to pay for both tax debt and day-to-day expenses.
Although the hardship program is not a long-term solution for dealing with financial debt, it buys you some time to negotiate an installment agreement, apply for tax relief or an offer in compromise, or get your debt forgiven. The first thing you should do when facing tax debt is to hire a tax attorney to help figure out the best course of action.
Ronald Arthur Stearns Sr. PLLC. is ready to help you by fighting against the IRS, applying for hardship status, and ensuring that your life is not ruined by tough penalties. Our law firm has an in-depth knowledge of tax law and IRS regulations, and we know how to fight against the IRS for tax debts.
Ronald Arthur Stearns Sr. has over 30 years of litigation experience and has been helping Texas taxpayers fight back against the IRS since 1996. We have what it takes to get the best outcome in your case.
Contact us today for an initial consultation at 210-853-2135.