How to Apply for IRS Tax Hardship Relief

When taxpayers are unable to meet their federal tax obligations, the Internal Revenue Service (IRS) provides specific relief provisions. Engaging with the IRS to declare a financial hardship is a formal procedure that requires a detailed presentation of your financial situation. The agency has established pathways for individuals who can demonstrate that paying their tax liability would prevent them from affording basic living necessities. This process acknowledges that a taxpayer’s circumstances can legitimately hinder their ability to satisfy a tax debt in full or on a standard payment schedule.

Available IRS Hardship Options

One primary option is the Currently Not Collectible (CNC) status. When an account is placed in CNC status, the IRS temporarily pauses collection efforts, such as levies on wages or bank accounts. This is not a forgiveness of the debt; interest and penalties continue to accrue, but it provides a temporary reprieve for individuals who can prove they cannot afford basic living expenses. The IRS will periodically review the taxpayer’s financial situation to determine if their ability to pay has improved.

An Offer in Compromise (OIC) is an agreement with the IRS to settle a tax liability for less than the full amount owed. The IRS evaluates an OIC based on an analysis of the taxpayer’s ability to pay, income, expenses, and asset equity. Unlike CNC status, an approved OIC can permanently resolve the tax debt once the agreed-upon amount is paid.

For those who can make some payments, an Installment Agreement allows for monthly payments over time. While this is a payment plan rather than a hardship designation like CNC, it is a common resolution for tax debt. A Partial Payment Installment Agreement is a variation where the taxpayer makes monthly payments, but the total paid may be less than the full liability. These options serve different purposes, from a temporary pause to a permanent settlement.

Determining Your Eligibility

The foundation of any IRS hardship determination rests on a detailed financial analysis that compares your monthly income against your necessary living expenses. The IRS uses a specific set of criteria known as the Collection Financial Standards to assess what you can afford to pay. These standards provide a consistent framework for evaluating a taxpayer’s financial situation and are broken down into national and local categories.

The IRS establishes National Standards for certain basic necessities, with figures that vary by family size. Taxpayers are allowed this standard amount without needing to provide detailed receipts, though they must substantiate claims exceeding the standard. The five categories are:

• Food
• Housekeeping supplies
• Apparel and services
• Personal care products and services
• Miscellaneous expenses

The IRS applies Local Standards for housing and transportation costs. For housing and utilities, the standard is based on the county where you reside and your family size, covering expenses like rent or mortgage, property taxes, and utilities. Transportation standards account for vehicle ownership or public transit costs and are also tied to your geographic location. The IRS allows you to claim the lesser of your actual expense or the local standard amount.

Your assets are another component of the eligibility calculation. The IRS looks at the equity in your assets, which is the fair market value of an asset minus any debt against it. This includes real estate, vehicles, bank accounts, retirement funds, and other investments. The agency views this equity as a potential source for paying your tax debt, and a significant amount of accessible equity can impact your eligibility for hardship programs.

Required Documentation and Forms

Applying for hardship relief requires gathering a comprehensive set of supporting documents that validate your financial picture. This includes recent pay stubs, bank statements for all accounts, and statements for any investment or retirement accounts. You will also need proof of your expenses, such as mortgage or rent statements, utility bills, vehicle loan information, and statements for any other debts like credit cards or student loans.

The primary document for demonstrating financial hardship is the Collection Information Statement. Form 433-F is a common version used by the IRS Automated Collection System. For more complex cases handled by a Revenue Officer, you will likely complete Form 433-A for wage earners and self-employed individuals. If the tax debt belongs to a business, Form 433-B details the business’s financial condition.

The Form 433 requires a complete breakdown of your assets, from cash in bank accounts to the value of your vehicles and real estate. It also requires a detailed accounting of your monthly income and living expenses, which the IRS compares against its standards. Be thorough and accurate, as the form is signed under penalty of perjury.

If you are seeking an Offer in Compromise, you must also complete Form 656, Offer in Compromise. This form outlines the tax periods you wish to compromise and the amount you are offering to pay. An OIC application package must include a completed Form 433-A (OIC) or 433-B (OIC). You must also submit a non-refundable $205 application fee along with an initial payment toward your offer.

Submitting Your Hardship Request

Once all forms and documents are ready, submit the package to the IRS. The mailing address for your application is provided in the instructions for the specific form you are using. It is advisable to send the package via certified mail with a return receipt to have proof of delivery.

After submission, the IRS will send a letter confirming they have received your application. The review process can take several months, during which the IRS may contact you or your representative for additional information or clarification. For an OIC, you must continue to make any required monthly payments while the offer is being considered and remain current on all tax filing and payment obligations.

If your request for CNC status is approved, the IRS will cease collection activities but may still file a Notice of Federal Tax Lien. If your OIC is accepted, you will receive a letter detailing the terms and must pay the offered amount on schedule. If your hardship request is rejected, the IRS will send a notification explaining the denial and your right to appeal.