Having the IRS go after you is never an exciting experience. The constant pressure of the federal government can be extremely stressful and often intimidating, causing back tax relief seems nearly impossible to achieve. Many taxpayers are ignorant of IRS hardship procedures introduced by the IRS hardship program, as well as the opportunities it creates for individuals suffering from a tax hardship.
Under IRS hardship rules, if a person would face unfair financial hardship after the collection of their outstanding taxes, they may be able to qualify for an “Uncollectible” status. Once declared currently not collectible, the IRS cannot take your paycheck or property in lieu of tax payment. With the aid of a tax advocate for hardship, you can start constructing a substitute repayment plan and clearing your name off the IRS delinquent tax list.
Who Is Eligible for IRS Financial Hardship?
If you have difficulty paying your tax, you might be able to qualify for IRS hardship. The IRS will use the information given on the Form 433A, 433B or 433F to determine whether the account is qualified for tax hardship. Generally speaking, IRS hardship rules require:
● An annual income less than $84,000 per year
● Little or no funds left over after paying for basic living expenses.
● Living expenses fall within the IRS guidelines. The IRS includes four categories for allowable living expenses, called “collection financial standards”:
▪ Food, clothing, housekeeping supplies, personal care products, and miscellaneous items
▪ Housing and utilities
▪ Transportation
To evaluate these finances, tally up your total allowable living expenses and subtract that number from your total monthly income; the resulting number is what’s called a “net disposable income,” and what the IRS anticipates you to pay toward your taxes. By verifying you have little to no net disposable income, you can qualify for IRS hardship.
IRS hardship rules state that CNC codes can only be used for “individual or joint IMF assessments, sole proprietorships, partnerships where a general partner is personally liable, and LLCs where an individual owner is identified as the liable taxpayer”. In other words, CNC IRS hardship is usually not intended for most large-scale corporations, but individual taxpayers and small business owners instead. Corporations unable to pay delinquent taxes as a result of hardship should consider researching bankruptcy laws instead.
What are the IRS Hardship Rules?
If your account is pronounced CNC under tax hardship, the IRS does not have right over any collection procedures in an effort to dispute your tax debt. Common collection methods include, but are not restricted to:
● Tax Lien
A federal tax lien is the government’s lawful claim against your property when you neglect to pay a tax debt. It defends the government’s interest in your property including real estate, personal property, and financial assets until your debt is repaid in full.
● Tax Levy
While a lien protects the government’s interest in your property, a levy actually takes it away on their behalf and applies it to your outstanding debt. If you don’t make necessary plans to settle your tax debt, the IRS can levy, seize and sell any of your properties. If a levy creates immediate financial hardship, it may be released, but that does not mean you are excluded from repaying your debt.
● Garnished Wages
Garnished wages are sometimes called wage levies. It occurs when the IRS collects a portion of your wages and applies them to your outstanding back tax. A part of your wages may be excluded depending on the amount of standard deductions and the number of personal exemptions you claimed, but they will keep removing it until the amount of overdue taxes is paid, you make other arrangements to settle your balance, or the levy is lifted.
IRS hardship rules can apply to an account for up to 10 years, which is usually how long the IRS has to collect back taxes before the statute of limitations are enforced. The IRS will evaluate the taxpayer’s information every two years to make certain they still qualify for tax hardship. If they notice an increase in income and believe it to be within your means to repay your taxes, they will remove the CNC status and revoke the IRS hardship.
While you’re in IRS Hardship, the government cannot take your paycheck, seize your property, or wipe your bank account. However, just because they eased up on their collection pressure does not mean your obligations are raised. IRS hardship program does not stop penalties and interests. In the year 2018, the penalties for late filing and paying taxes include:
▪ Failure to File
This is when you fail to file your tax return by the return due date, April 15th, or by the extended date if you had requested for a tax extension.
✔ 5% of unpaid tax to be reported
✔ Charged each month (or part of a month) the return is late, up to five months
▪ Failure to Pay
When you don’t pay the tax reported on your return in full by the due date or April 15th, an extension to file doesn’t extend the time to pay.
o 5% of the unpaid tax; 0.25% during an agreed installment period if the return was filed on time, and taxpayer is an individual; 1% if tax is not paid within 10 days of a Notice of Intent to levy
o Recurrent charge on the remaining unpaid tax each month until the balance is paid fully or until 25% is reached
You should note that the penalty for failure to file is more severe than Notice of failure to pay; this is the IRS’s way of encouraging taxpayers to file a tax return yearly, even if they’re unable to pay. For this reason, ensure to file your required return each year, even if you face tax hardship.
What are the other Payment Plans?
Every year within the IRS hardship program, the government sends you an email stating how much you owe in taxes. If you are buoyant enough, they recommend making payments when possible. However, the IRS does give alternative payment plans within the reach of taxpayers facing tax hardship, such as:
▪ IRS Installment Agreement
A payment plan is an agreement to pay back your tax obligations over an extended period of time in a series of installments, and one of the best ways to keep away from incurring a lien or levy. You’ll continue to incur interest and fees until the balance is repaid, but taking an installment agreement can help stop failure to pay penalties being added to your account in future times.
▪ IRS Settlement
An IRS Settlement, sometimes called an Offer in Compromise is at times a better option than IRS hardship. It’s an available alternative payment option for those who see no capability of paying off their tax debt within the immediate future. Instead, the taxpayer proposes an alternative amount to pay the IRS, and if the government approves their offer, they compromise and settle the debt with the proposed amount.