Federal Hardship Tax Relief
- If you owe penalties and interest for unpaid taxes or a late tax return, the IRS will consider waiving these amounts if you can demonstrate "reasonable cause." Reasonable cause means that you exercised at least ordinary care and prudence, but were still unable to pay on time. This determination is made on the totality of your circumstances, and the IRS will likely request documentary evidence. Lack of money is never accepted as a reasonable cause, however. Furthermore, this waiver will eliminate penalties and interest but will not reduce your underlying tax debt.
- The IRS will allow you to pay your taxes on the installment plan if you owe no more than $25,000, inclusive of penalties and interest. This will not stop penalties and interest from accumulating, but it will suspend IRS collection measures against your property as long as you continue to pay on time. If you owe more than $25,000, the IRS will examine your finances in detail before deciding whether to allow you to pay by installment.
- Status 53, otherwise known as Uncollectible Status, is a temporary moratorium on IRS collection activity, typically granted for one or two years. The IRS is most likely to grant Status 53 if it concludes, based on detailed financial information that you have provided, that levying on your property will not satisfy your outstanding tax obligation and will actually impede your ability to pay it in the long run (if most of your property is needed for the operation of your business, for example). The granting of Status 53 will not suspend the continuing accumulation of penalties and interest.
- An Offer in Compromise is an IRS offer to settle with you for less than the amount it says you owe. These offers will usually not be granted unless the IRS concludes that you will never be able to pay your outstanding tax debt, or if it suspects that the amount is in error due to a miscalculation by an IRS employee.
- If you don't pay your outstanding tax debt and the IRS decides to begin collection procedures, it can place a tax lien against all of your property including your house, your car, and even your business accounts receivable. If you believe this action to be in error or unjust, you can request a hearing by filing IRS Form 12153. Examples of acceptable grounds to challenge a tax lien include bankruptcy, an IRS error (if the tax is owed by your spouse and not you, or example), and undue economic hardship.