During these tough economic times many people are financially strapped and are having a hard time just making ends meet. IRS does not advertise this but it is very possible that you may qualify for an economic tax hardship with the Internal Revenue Service.

There are provisions within the Internal Revenue Service manual that allows for taxpayers that are going through a financial crisis to apply for this economic tax hardship and in doing so IRS will go ahead and put your case into a currently non-collectible file.

The Process

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    For this process to happen, the Internal Revenue Service will require a current financial statement. IRS will require either a 433-F or a 433 -A depending on which unit is currently working the case.

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    IRS will expect that this financial statement be correctly documented and also you will have to have all tax returns currently filed with the IRS.

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    IRS will also ask if you are currently making estimated tax payments or you have sufficient withholding being taken out so you will not owe taxes this year. IRS may ask you to adjust your current withholding to put you in a current tax hardship.

Should IRS determine that your case is a current hardship, IRS will put you into the currently noncollectable status. As a result your case will stay suspended for the next two or three years until your adjusted gross income reflects a change in your ability to pay the IRS.

When the CADE 2 computers of IRS finds that your AGI has sufficiently increased, your case will send the case back in to the billing cycle to be put back into the system once again.

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When the taxpayer’s liability can be collected in full, but collection of the federal tax would create an economic hardship, the IRS will consider all facts before taking collection action or enforcement action such as federal tax liens or federal tax levies.

The definition of economic hardship is derived from Treasury Regulations § 301.6343-1.

An Economic hardship occurs when a taxpayer is unable to pay reasonable basic living expenses.

The determination of a reasonable amount for basic living expenses will be made by the Internal Revenue Service and will vary according to the unique circumstances of every individual taxpayer.

Department of Labor Platforms

The IRS in accordance with the United States Departmental of Labor have set up platforms to determine these hardship and living standards. They can be found on our website.

These standards are also being used by the United States Department of Justice in the normal course of U.S. bankruptcy proceedings. Because economic hardship is defined as the inability to meet reasonable basic living expenses, it applies only to individuals (including sole proprietorship entities).

Compromise on economic hardship grounds is not available to corporations, partnerships, or other non-individual entities.

The taxpayer’s financial information and special circumstances must be examined by the Agent and fully documented to determine if they qualify for an economic hardship. All documentation must be in writing.

Financial analysis includes reviewing basic living expenses as well as other considerations. The IRS may go back for the last 3 years, examine all canceled checks and will complete a full asset check.

IRS will /may also examine credit reports and loan applications and sale of assets for the last 3 years.

The IRS will/can also look to see if the taxpayer has placed assets beyond the IRS reach.

In addition to the basic living expenses, other factors to consider that have impact upon the taxpayers financial condition include:

  1. The taxpayers age and employment status,
  2. Number, age, and health of the taxpayers dependents,
  3. Cost of living in the area the taxpayer resides,
  4. Any extraordinary circumstances such as special education expenses or natural disaster,
  5. Medical situations that have effected the life of the taxpayer or others in his family,
  6. The education of the taxpayer is sometimes considered as well.

This list is not all-inclusive. Other factors may be considered in making an economic hardship determination.

Other Factors

Other factors that support an economic hardship determination may include:

  1.  The taxpayer is incapable of earning a living because of a long term illness, medical condition or disability, and it is reasonably foreseeable that the financial resources will be exhausted providing for care and support during the course of the condition.
  2. The taxpayer may have a set monthly income and no other means of support and the income is exhausted each month in providing for the care of dependents.
  3. The taxpayer has assets, but is unable to borrow against the equity in those assets, and liquidation to pay the outstanding tax liabilities would render the taxpayer unable to meet basic living expenses.
  4. Someone in the immediate family of the taxpayer has been hit with a catastrophe.

An act of God causing an unforeseen occurrence.

Remember, each situation is different and each and every case is based on its own merit. No two cases are ever the same.

Economic Hardship – IRS will release Levies

A tax levy is required to be released when the Service determines the levy is creating an economic hardship, i.e., the levy will cause the individual to be unable to pay their reasonable necessary living expenses.

In order to obtain a release of levy for economic hardship the taxpayer must act in good faith.

Examples of failure to act in good faith include, but are not limited to:

  1. failing to make full disclosure of assets
  2. inflating actual expenses or costs
  3. falsifying financial information.

The decision to release a levy due to economic hardship requires financial analysis. The financial analysis requires sufficient financial information to confirm the levy is causing the taxpayer to be unable to meet necessary living expenses.

Cannot Pay the IRS – Economic Hardships – There are Options – Former IRS Agents

Michael D. Sullivan, Former IRS Agent comprised of tax attorneys, CPA,s and former IRS agents. We have over 206 years professional experience in over 60 years of working directly for the Internal Revenue Service.

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