IRS Hardship – How do I qualify?

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IRS not collectible status

IRS Not Collectible Status verification from IRS

Overview of IRS Hardship – How do I qualify?

“IRS Hardship? How do I qualify?” This question is almost always asked when troubled taxpayers learn of the existence of this fantastic IRS status.
Not everyone can qualify but those who do qualify for it love it.
This IRS Collection Financial Standards Overview is merely that – an overview. For more detailed explanations you must read more pages and links provided in this summary.
IRS requirements for any collection matter are typically calculated on a Form 433-A or a Form 433-F. More information is provided on Form 433-A and it is required for taxpayers with debts over $25,000. More about Form 433-A and Form 433-F below.
However, regardless of the total amount of your tax debt, you can still qualify for IRS currently Not Collectible Status. Do you owe $3,258? You can qualify. You say you owe 14,653? It can be done. $37,867? Yeah, you can still do it. You owe $158,987? If your numbers are right it can work. $587,500? Let’s see if we can make it happen.
The amount of money you owe has nothing to do with whether or not you can qualify for this IRS classification.

Ability to pay and Undue Economic Hardship

IRS will classify you as Currently Not Collectible if you can prove that you do not have the “ability to pay” anything at all on your old tax debt. Furthermore, IRS will not require payment of overdue taxes if payments on those taxes would cause an “undue economic hardship.” This predicament occurs when a taxpayer is unable to pay what is defined as “ordinary and necessary living expenses.”
Such expenses are generally described as “reasonable and basic living expenses.”  Basic living expenses are those that provide for the health, welfare, and production of income for the taxpayer or the taxpayer’s family. 

Proving your monthly income

All sources of monthly income must be reported to IRS. Income includes:

  • Salary and wages
  • Dividends and interest
  • Alimony
  • Self-employed business income
  • Capital gains (not losses)
  • IRA distributions
  • Pensions and annuities
  • Rent income, royalties, partnerships, S-corporations, trusts, etc.
  • Farm income
  • Unemployment income
  • Social Security Income
  • Any other miscellaneous income they missed

As you can see, all of your income sources must be reported to IRS. Copies of all of your income documents must be provided.

Ordinary and necessary living expenses

All of your monthly “ordinary and necessary living expenses” must be reported to IRS. Those expenses include:

  • Food
  • Housekeeping Supplies
  • Clothing and cleaning
  • Personal care products
  • Housing and utilities
  • Health insurance
  • Prescription drugs, doctors, hospitals, etc.
  • Child care
  • Term life insurance (not whole life insurance)
  • Court ordered payments (child support, alimony restitution, fines, etc.)
  • Transportation costs (gas, oil, repairs, maintenance, tolls, etc.)
  • Automobile payments (has a maximum allowable amount)
  • Other expenses

Again, as you can see, all of your monthly living expenses must be reported to IRS. Copies of some of your monthly expense statements must be provided.

IRS Form 433-A and IRS Form 433-F

Taxpayers who owe less than $25,000 in unpaid federal income taxes should report their information on IRS Form 433-F.
Taxpayers who owe more than $25,000 in unpaid federal income taxes should report their information on IRS Form 433-A.
Instructions are provided with each form. Mailing addresses are also provided.

Need professional help?

Taxpayers in need of professional assistance or representation can contact us. You can always get up to an entire hour of free telephone time with one of our knowledgeable National Internet Tax Services gurus.

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