In times of financial distress, meeting tax obligations can become overwhelming, especially for small business owners and self-employed individuals with fluctuating incomes. The IRS offers several programs to help taxpayers cope with financial hardship, including the IRS Hardship Program. This program allows qualifying taxpayers to temporarily delay the collection of taxes, giving them a much-needed break to manage their finances and prevent further financial strain. Suppose you need help to meet your tax obligations. In that case, it’s essential to explore options like the 403b hardship withdrawal and the IRS Hardship Program, which are designed to alleviate some of the pressure when finances are tight.
What Is This IRS Hardship Program?
The IRS Hardship Program, also known as “Currently Not Collectible” or CNC status, allows one to postpone tax payments because payment will impose a hardship on the payee. This status is helpful to people who have lost their income for a while, have a lot of medical bills, or have other valuable problems. Upon being accorded CNC status, the IRS puts on hold methods like levies, garnishments, and placing liens on property or bank accounts.
For one to be considered CNC, there are certain factors that they have to meet, one being that the taxpayer’s income is just enough to enable them to meet basic human needs. The IRS, in essence, looks at the individual or business from a financial perspective, at income, assets, and monthly expenses. In most cases, people with low income and little collateral security are in good standing to apply. While CNC status offers a temporary stay, it is designed for a party that cannot afford to pay, and the relief is not permanent. To several people, getting CNC status is a measure of finding a way out of impending financial doom, even if they are looking for long-term solutions.
Therefore, small business or self-employed applicants who obtain CNC status may find it helpful in the case of temporary financial difficulties. However, monitoring the change in economic position is always wise because the IRS undertakes periodic reassessments of the taxpayer’s ability to pay. It is essential to understand that if a taxpayer’s financial status changes, the IRS may resume collection, thus the program’s limitations.
How to Apply for the IRS Hardship Program
The IRS Hardship Program requires taxpayers to submit their financial data to prove they cannot pay the amount owed. The process begins with filing form 433-F Collection Information Statement, in which the taxpayer reveals all necessary facts about their income, daily living expenses, assets, or other taxes. This information assists the IRS in determining if payment of taxes would be a hardship. Sometimes, taxpayers may be asked to produce other supporting documents like bank statements, proof of income, and medical expenses.
The best advice that a taxpayer is advised to seek is consultation from a tax professional. To prepare a good case for CNC status, one must be very particular and know what the IRS expects. A professional can also assist in filling out all the necessary forms, thus increasing the chances of getting the CNC approval. A taxpayer can also talk about other relief measures, such as installment agreements or offers in compromise if CNC status is not provided.
Benefits and Limitations of the IRS Hardship Program
The first advantage of the IRS Hardship Program is the suspension of collection activities, which may be very important when the IRS threatens to take actions that the taxpayer cannot avoid for some time. The program achieves this by halting the collection activities that force individuals to spend most of their time paying their debts and instead be able to attend to their basic needs and work on the best ways to handle their financial strains. This temporary break can benefit the mind and wallet when there are other forms of debt to pay.
However, there are some essential things to remember with this program: CNC status does not mean that you are no longer indebted or that the amount will be collectible at a lower value. The unpaid balance will attract interest and penalties that occasionally cause the overall amount to rise. Taxpayers also need to know that CNC status is not indefinite and can be changed if the person’s financial condition changes. The IRS reviews accounts in CNC status at least once a year and can resume collections if the IRS determines that the taxpayer’s income has risen.
Conclusion
The IRS Hardship Program offers a short-term reprieve for those in difficult financial circumstances, allowing a taxpayer to avoid immediate collection. While this program will help those struggling to pay their taxes, it is a temporary solution; taxpayers should use this time to pay off their dues and adjust for future tax seasons. The process of applying for CNC status is sometimes intricate, and it is always recommended that one seek help from a tax professional to increase the chances of approval.