Can Your Tax Debt Be Forgiven Due to Financial Hardships?

Can Your Tax Debt Be Forgiven Due to Financial Hardships?

• Dec 01, 2022

Struggling with your financial situation is difficult enough on its own; struggling to make ends meet while also receiving constant collection notices from the IRS about your tax debt is even worse. If you’re going through a difficult financial period or experiencing serious financial hardships, you might be wondering if there’s anything you can do to relieve the burden of tax debt from your shoulders. Will the IRS forgive tax debt for taxpayers with financial hardships? Here’s what you need to know.

The IRS Financial Hardship Program

The short answer is, yes, the IRS does offer a financial hardship program that is designed to assist taxpayers with their tax bills. However, that doesn’t always entail completely forgiving your tax debt. Rather, the program is designed to ensure that you can continue to meet your necessary living expenses while also finding a path towards paying off your taxes. Still, this program can end those stressful collection actions and give you clear, actionable steps that will help you get your tax debt under control. For many taxpayers, that’s all they truly need to help get back on their feet.

What Are the Requirements?

In order to qualify for an IRS hardship program, you will have to provide detailed financial information that proves you are unable to pay your taxes due to financial hardship. This is usually done with the IRS Collection Information Statement, Form 433-A or 433-F. To fill out this form, you will need to be able to provide the following details:

• Personal contact information
• Social Security numbers for yourself and other household residents
• Names of your dependents
• Employment information
• Financial institutions (including checking, savings, and retirement accounts)
• Complete list of your assets (life insurance plans, real estate, vehicles, etc.)
• Other sources of income (alimony, child support, pension, etc.)
• Any pending lawsuits or active legal cases against you
• Detailed accounting of your monthly expenses (rent, food, utilities, etc.)

Along with the completed form, you’ll also need to supply income and spending statements for at least the past three months, as well as copies of your monthly bills and pay stubs, and a copy of the last tax return you filed.

The IRS will then review all of this financial information to determine if it is unreasonable to expect you to meet your monthly expenses while also paying your tax bill. If they determine you have a genuine hardship, you will likely be placed on a payment plan that fits your financial needs.

What Happens When Approved?

As stated above, being approved for the IRS financial hardship program doesn’t mean your tax debt will be wiped clean. Rather, you’ll likely be placed on one of several different potential programs.

One of the options available to you is to place your account under Currently Not Collectible (CNC) status. This means you won’t be getting those frustrating and stressful phone calls about paying your tax debt, and you won’t have to worry about wage garnishment, tax levies, tax liens, and other collection actions. However, this does not pause the accrual of late fees or interest on your taxes; it simply gives some breathing room to those whose financial hardships are temporary, and they don’t want collection actions to escalate before they can get back on their feet and pay off their debt.

Other options available to you include both short-term and long-term payment plans, which can spread out your tax debt into more manageable monthly payments until it’s fully paid off. Another option is to apply for an Offer in Compromise, which allows you to settle your tax debt for less than you owe; these aren’t very common, but can be approved for those with prolonged financial hardships, who are unlikely to be able to pay off their taxes before the statute of limitations expires on the IRS’s ability to collect.

How Do You Get Started?

If you’re experiencing financial hardships and your tax debt is adding to your burdens, we can help you get relief. Contact the IRS Advocates today, and we’ll discuss the options available to you to determine the best course of action. Whichever program you believe best fits your needs, we’ll guide you through applying for that plan and submitting all of the necessary paperwork. We offer professional support throughout the process, so you can breathe a little easier, knowing that your application for financial relief is in good hands. Call now to schedule a meeting with one of our tax settlement experts.