Hardship Status

What Is Hardship Status?

Hardship status or Currently Not Collectible status is a possible option for taxpayers who have difficulty meeting basic living expenses and cannot enter into an installment agreement or who do not qualify for an offer in compromise. 
Hardship status does NOT remove or eliminate the tax debt owed.  It does place the collection process “on hold”.  The tax is still owed and interest and penalties still apply.  The IRS will cease all collection efforts and will release all levies from wages.

Who Qualifies for Hardship Status?

Taxpayers who cannot afford to pay the IRS without suffering a financial hardship. 

What are my obligations while on Hardship status?

You need to file all future tax returns on time.
You need to pay all taxes on those tax returns.

How Long Can I Stay in Hardship Status?

As long as your financial situation does not change, you should remain in hardship status until the time period for the IRS collect the tax expires.
You will be removed from hardship status if your financial situation improves so you are no longer qualified for hardship status.  While in hardship status, the IRS will send you an annual statement showing the amount of tax still owed and the amount to be paid when the taxpayer is in a better financial situation. 

What is the time period for the IRS to collect on tax debts?

The IRS has ten years from the date the taxes are assessed to collect taxes owed.  Certain events can extend this time period to collect the tax.  Subject to these certain time extensions; once the time period to collect the tax has expired, then the IRS will never be able to collect on the debt, and you will no longer need to be in hardship status. 

Do I need to reapply every year to stay on hardship status?

No, once you are placed into hardship status you can remain there unless your financial situation changes.  For example, a large increase in income could cause you to no longer qualify. 

Do interest and penalties continue to add to my debt?

Yes.  While the IRS cannot collect when you are in hardship status, interest and penalties will continue to be applied to your debt. 

Do I need to file my taxes?

Yes.  You need to continue to file timely tax returns while on hardship status.  You also may need to file tax returns for previous years. 

Can I still receive my tax refunds or stimulus money?

No, the IRS will collect that money and apply it towards your debt.

If Community Legal Aid Services represents me, what documents will they need to put me in hardship status?

  • 3 Months of pay stubs
  • 3 Months of bank statements including any savings account
  • Most recent statement from IRA’s, CD’s, or 401k plans, or other pension or savings plans. 
  • Make, model, and year of automobile and year of purchase
  • Statements from Social Security declaring your monthly benefits
  • Last month’s rent receipt
  • Last month’s electric bill
  • Last month’s gas bill
  • Last month’s water and sewage bill
  • Last month’s phone bill and cell
  • Automobile payment
  • Life insurance bill
  • Auto insurance bill
  • Medical bills if extraordinary

 

This handout is meant to give you general information and not to give you specific legal advice.
Prepared by Community Legal Aid Services, Inc. Info Updated: April 2012

CE-24-BR103-CLAS