How to File the 1127 Tax Form for a Payment Extension
Understand the formal process for requesting a tax payment extension. This guide covers demonstrating undue hardship and the obligations involved when filing Form 1127.
Taxpayers unable to meet their payment obligations by the deadline may seek a temporary delay from the Internal Revenue Service (IRS). This is accomplished by filing Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship. This form is specifically for requesting more time to pay, not to file, and is granted only in situations of significant financial difficulty. An extension to file a tax return, such as a Form 1040, requires a separate form, typically Form 4868.
For tax shown on a return, this extension is generally for up to six months, though a longer period may be granted to taxpayers who are out of the country. For an amount determined as a tax deficiency, the extension can be for up to 18 months, with the possibility of an additional 12 months in exceptional cases.
Qualifying for an Extension to Pay
An extension to pay is not granted for mere inconvenience. The IRS requires a taxpayer to demonstrate that paying the tax on its due date would cause an “undue hardship.” This term is defined as a substantial financial loss, not just an inability to pay. A qualifying hardship would involve being forced to sell property or assets at a “sacrifice price,” meaning a price well below fair market value, to generate the funds needed for the tax payment.
Situations that might lead to this level of financial distress could include the loss of a job, unexpected and severe medical expenses, or significant property damage from a natural disaster. The IRS evaluates each case individually based on the specific facts and circumstances presented.
Simply having limited cash on hand or needing to sell assets at their normal market value would likely not meet the undue hardship standard. If a taxpayer can secure funds through other means without suffering a significant financial loss, such as by obtaining a loan against property at a fair interest rate, the IRS may not consider the situation an undue hardship. The burden of proof is on the taxpayer to show that paying on time would result in a genuine and considerable financial detriment.
Information and Documents Needed to Apply
You must obtain Form 1127 from the IRS website. The form requires specific details, including your name, identifying number like a Social Security Number, and address. You must also specify the tax form the payment relates to, the tax period in question, and the exact dollar amount of tax for which you are requesting the payment extension.
The application requires a detailed written statement explaining precisely why paying the tax by the due date would cause a substantial financial loss. A general declaration of hardship is insufficient; the statement must be specific and persuasive.
You are required to attach two specific financial statements. The first is a statement of assets and liabilities, which must be current as of the last day of the month preceding your application. This statement should list all your assets, such as cash, real estate, and securities, and indicate both their book value and current market value. The second required attachment is an itemized list of all income and expenses for the three months immediately prior to the tax due date.
The Filing Process for Form 1127
Form 1127 must be filed on or before the original due date for the tax payment. For an income tax liability on a Form 1040, this is typically April 15. If the request pertains to a tax deficiency identified during an IRS examination, the form must be filed by the payment due date specified in the IRS notice. Filing after the deadline will result in the request being denied.
The completed Form 1127 and its attachments must be filed with the IRS Advisory Group Manager for the area where you maintain your legal residence or principal place of business. To find the correct address, taxpayers should consult IRS Publication 4235, “Collection Advisory Offices Contact Information.” It is advisable to use a mailing method that provides proof of delivery, such as certified mail. The IRS now permanently accepts electronic and digital signatures on Form 1127.
After submitting the application, the IRS will send a written notification indicating whether the extension has been approved or denied.
Post-Filing Obligations and Considerations
If the IRS approves your application, the failure-to-pay penalty, which is normally 0.5% of the unpaid tax for each month it is late, will be waived for the duration of the extension period. Interest will be charged on the unpaid tax from the original due date until the date the tax is paid in full. The IRS also retains the right to require the taxpayer to secure a bond for up to double the amount of the tax liability as a condition of the extension.
Should the IRS deny your request for an extension, the tax payment is immediately due. Failure to pay by the original due date will result in the assessment of both the failure-to-pay penalty and interest on the outstanding balance. In this scenario, you would need to explore other resolution options with the IRS, such as setting up an installment agreement to pay the liability over time.