Dealing with financial difficulties can be overwhelming, especially when facing outstanding tax debts. However, the Internal Revenue Service (IRS) understands that taxpayers may encounter genuine financial hardships and has established the IRS Hardship Program to provide relief options. In this article, we will explore the rules and requirements of the IRS Hardship Program, along with the IRS Fresh Start program and other tax relief options that can help individuals regain financial stability.

What is The IRS Hardship Program?

The IRS Hardship Program is designed to assist taxpayers who are experiencing significant financial difficulties in meeting their tax obligations. The program aims to provide temporary relief from aggressive collection actions such as tax levies, tax liens, and wage garnishment. By granting a taxpayer’s request for hardship status, the IRS acknowledges the taxpayer’s inability to pay the full tax debt due to financial constraints.

IRS Hardship Program Requirements:

To qualify for the IRS Hardship Program, taxpayers must meet specific requirements:

  1. Demonstrated Financial Hardship: Taxpayers must demonstrate their inability to meet basic living expenses, such as housing, food, and medical care, while also paying their tax debt. The IRS will assess the individual’s financial situation to determine eligibility.
  2. Current Tax Compliance: Individuals applying for the hardship program must be current with their tax filings. Failure to file tax returns for previous years may disqualify them from participating.
  3. Honest and Accurate Information: Providing honest and accurate information on the hardship application is crucial. Falsifying financial information can lead to penalties and denial of relief. 

IRS Hardship Rules:

The IRS Hardship Program involves three main components:

  1. Tax Levies: Under the hardship program, the IRS may release tax levies on wages, bank accounts, or property. This allows the taxpayer to access their income and essential assets while working towards a resolution.
  2. Tax Liens: In certain cases, the IRS may withdraw or subordinate tax liens to provide the taxpayer with an opportunity to refinance or sell assets, which can help in settling the tax debt.
  3. Wage Garnishment: If a taxpayer is facing wage garnishment, the IRS may temporarily suspend this action to allow the individual to meet essential living expenses.

How Long Does The IRS Hardship Program Last?

The IRS Hardship Program is typically granted for a limited duration. The length of the program will depend on the taxpayer’s financial situation and ability to make partial payments toward their tax debt. Once the hardship period expires, the taxpayer is expected to resume regular tax payments or explore other tax relief options.

How Do I Stay in the IRS Hardship Program?

To remain in the IRS Hardship Program, taxpayers must comply with certain requirements:

  1. Timely Payments: During the hardship period, the taxpayer must make the agreed-upon partial payments on time. Failure to do so could result in removal from the program.
  2. Updated Financial Information: The taxpayer may be required to provide updated financial information periodically to ensure continued eligibility for the program.
  3. Stay Current with Tax Filings: Taxpayers must continue to file their tax returns promptly for the duration of the hardship program.

What if I Owe New Back Taxes?

If a taxpayer accumulates new back taxes while enrolled in the IRS Hardship Program, they are encouraged to contact the IRS immediately. The taxpayer may be allowed to include the new tax liability into the existing hardship arrangement or explore alternative tax relief options.

How Do I Pay Back Taxes While in the IRS Hardship Program?

During the hardship program, taxpayers are expected to make partial payments toward their tax debt. The IRS will determine the affordable monthly payment based on the individual’s financial situation. These payments may not fully cover the tax liability but will provide relief while the taxpayer’s finances are constrained.

The IRS Fresh Start Program:

The IRS Fresh Start Program is an initiative aimed at providing long-term tax relief to struggling taxpayers. It includes various repayment options and helps eligible individuals become compliant with their tax obligations.

How is the IRS Fresh Start Program Helpful?

The IRS Fresh Start Program offers several benefits to qualifying taxpayers:

  1. Reduced Installment Agreement Requirements: Under the Fresh Start Program, taxpayers with tax debts of up to $50,000 can enter into a streamlined installment agreement without providing financial statements.
  2. Easier Lien Withdrawal: The Fresh Start Program has raised the lien withdrawal threshold, making it easier for taxpayers to obtain a withdrawal after meeting specific conditions.
  3. Expanded Offer in Compromise: The program has expanded the Offer in Compromise program, making it more accessible for qualifying taxpayers to settle their tax debts for less than the full amount owed.

IRS Fresh Start Program Repayment Options:

Taxpayers under the Fresh Start Program have several repayment options:

  1. Short-Term Payment Plan: This option allows taxpayers to pay off their tax debt within 120 days.
  2. Long-Term Payment Plan: For those who cannot pay their debt within 120 days, this plan allows for monthly payments over an extended period.
  3. Offer in Compromise: Qualifying taxpayers may settle their tax debt for less than the full amount if they meet specific eligibility criteria.

Which IRS Fresh Start Payment Plan is Right for Me?

Selecting the appropriate repayment plan depends on individual financial circumstances. Taxpayers should consider their income, expenses, and the total tax debt owed when choosing a plan. Consulting a tax professional can be helpful in determining the most suitable option.

How Do I Apply for the IRS Fresh Start Program?

To apply for the IRS Fresh Start Program, taxpayers can follow these steps:

  1. File All Tax Returns: Ensure that all required tax returns are filed for the previous six years.
  2. Complete Form 9465: For a long-term payment plan, complete Form 9465, Installment Agreement Request, and submit it to the IRS.
  3. Submit Offer in Compromise: If pursuing an Offer in Compromise, submit Form 656, Offer in Compromise, along with the required documentation.

Avoid Debt with the IRS Fresh Start Program:

Participating in the IRS Fresh Start Program can be instrumental in avoiding further debt accumulation and resolving tax issues. Compliance with the program’s requirements will help taxpayers stay on track to achieve financial stability.

Other Tax Relief Options:

Aside from the IRS Hardship Program and the Fresh Start Program, there are additional tax relief options available:

  1. IRS Payment Plans: Taxpayers who do not meet the Fresh Start Program criteria may still qualify for an IRS payment plan, allowing them to pay off their tax debt over time.
  2. Offer in Compromise (OIC): This option is available for qualifying individuals who can prove that paying the full tax debt would create an undue financial hardship.
  3. Tax Defense Network: Seeking professional help from a reputable tax defense network can assist taxpayers in navigating the complexities of tax relief options and finding the most suitable solution.

Conclusion:

The IRS Hardship Program and the Fresh Start Program are essential tools that provide relief to taxpayers experiencing financial hardships. Understanding the requirements and rules associated with these programs can be crucial in securing the necessary assistance to resolve tax debts and regain financial stability. Taxpayers facing tax challenges are encouraged to explore these options and seek professional tax help to navigate the process effectively.