Hardship Status Request
In some circumstances, it may be possible to make a hardship status request and prove that there is a doubt as to collectibility regarding a tax bill. There may be a temporary problem that we can communicate to the IRS which may cause them to postpone collection activities until your financial hardship improves. Filing a hardship status request can get you placed into an Uncollectible Status. This won’t solve your tax problems alone, but in some circumstances, this option is used to obtain breathing room while we formulate an overall solution. For situations in which there is a more prolonged financial hardship, we can look at trying to demonstrate to the IRS that there is a doubt as to collectibility overall under the Offer in Compromise program.
A hardship status request can delay IRS collection action for up to 18 to 24 months or even longer although penalties and interest will continue to accrue.
The hardship status request must demonstrate that the economic hardship is due to special circumstances that have caused chaos in the taxpayer’s personal life. The taxpayer’s financial condition must be shown to be at at a point where basic household expenses, such as food, can’t be afforded. The IRS has strict guidelines as to what “makes up” household expenses. Examples of “special circumstances” that can lead to financial hardship and support a “Hardship Status” classification include:
- Divorce, separation and spousal issues. Examples of issues related to the spouse are: forgery, abandonment and tax problems.
- Pregnancy, child rearing and special education needs. These issues will often need a spouse to stop working.
- Number of dependents. As the number of household dependents increases the family income becomes more strained.
- Death in the family. This event can cause loss of income, added expenses and issues like stress.
- Physical and psychological disabilities and other health issues. These issues can reduce income, increase expenses and increase time commitments.
- Addictions. Alcohol, drug and gambling addictions can lead to disruptions in family finances and tax compliance. The IRS wants taxpayers to support all claims.
- Advanced age. This special circumstance can cause declining income, higher living expenses and forgetfulness.
- Employment problems. The loss of a job, industry recession, a spouse working away from home and time spent looking for a new job can all cause financial hardship.
- Retirement. Retirement of a taxpayer, a spouse, a parent or any other income contributor can stress the family finances.
- Other financial problems like casualty loss (fire, accident, flood, storm, etc.), stock market losses, increased mortgage payments, business losses, bankruptcy, imprisonment, military service, and child or spousal support needs.
Any hardship status request has to be thoroughly documented. We know how to paint that picture for you!