April 20, 2015

Stopping an IRS levyHow to Prove Financial Hardship to the IRS

A large percentage of individuals who owe back taxes to the IRS are unable to pay for them, often because they are in a bad financial situation and have no income, job, or assets. Even in such a situation, however, the IRS will come after them to make them pay their tax debt.

If you are sure that paying your debt now or in the near future is not a possibility—such as if you are on disability and are unable to work—then a “Hardship” or “Currently not Collectible” status may be your best option. Under such status, the IRS will temporarily stop collections and allow you to pay your back taxes at a later date.

Proving Hardship

Proving financial hardship to the IRS is not an easy task, as it will involve a lot of work on your part. You must be able to give the IRS a clear picture of your economic situation and what accounts for it, and convince them that collecting from you would indeed result in your suffering severe financial hardship.

Proving hardship entails filling IRS Form 433A, which requires very detailed information about your economic situation. You will need to provide your total monthly expenditures, including food, apparel and services, housing, utilities, transportation, personal care, and medical expenses.

Take note that you will need to submit proof along with your IRS form, and so you will need to provide at least three months worth of receipts and bills. If you are disabled, you will also have to provide government documents and hospital records. The IRS will be very thorough when verifying the information you have provided for review.

You must be accurate if you wish to be successful with your financial hardship application by providing every detail you can. The IRS will need to examine your finances closely, including what you and your family spend on each month. Leaving out a few expenses from your monthly expense report is not an option.

National Standards

It is important to note that if you are considered a hardship case, you are required to spend within what the IRS considers the “national average” on basic needs. As of March 2010, the monthly national standards per person as defined by the IRS are:

Food: $293

Housekeeping supplies: $28

Apparel and services: $86

Personal care products and services: $32

Miscellaneous: $87

Dealing with Rejection

Unfortunately, not everyone who applies for financial hardship is successful, and only a small percentage of applicants meet the strict standards of this program. If you do not qualify for Hardship and your application is rejected, you may want to consider other available options such as an installment plan, a partial payment installment agreement, or presenting an offer in compromise.

Consulting with a Tax Attorney

It is always a good idea to consult with a tax attorney first before trying to file for hardship on your own. A knowledgeable tax lawyer will be able to make a determination on whether or not declaring a hardship would be the most ideal option for your situation.


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