Seeking Tax Relief: Essential options for people in financial hardship

Do you need help meeting your tax obligations? This comprehensive guide from Newnity Taxes & Solutions will walk you through various tax relief options to help people like you manage financial hardship and find economic stability.

Financial hardship can affect anyone, leaving you feeling discouraged and powerless to fight back and succeed in managing your expenses and obligations. Taxes, in particular, can become a daunting burden during these times. However, several tax relief options are available to cope with this burden. At Newnity Taxes & Solutions, we understand your challenges and are here to guide you through your options. This blog will explore various avenues of tax relief, providing detailed information and practical steps to help you regain control of your financial situation.

1. Understanding Hardship

Hardship is a significant financial problem where your income cannot cover basic living expenses. This can be due to various factors, such as job loss, medical emergencies, or natural disasters. Recognizing that you are experiencing financial hardship is the first step in seeking appropriate tax relief options.

 

2. IRS Tax Relief Programs

The IRS offers several programs designed to help people facing financial hardship:

Offer in Compromise (OIC).

An Offer in Compromise allows you to settle your tax debt for less than the total amount you owe. This program is ideal if paying your tax debt in full would create an undue hardship. To qualify, you must demonstrate that you cannot pay your tax debt in full or through an installment agreement.

– Requirements:

– Complete IRS Form 656, Offer in Compromise.

– File Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals.

– Pay the application fee unless you qualify for a low-income exemption.

Application Process:

– Submit the required forms and financial documents.

– Pay the initial offer amount.

– Wait for the IRS to review and respond to your offer.

 

Installment Agreements.

If you cannot pay your taxes in full, an installment agreement allows you to make monthly payments over time. This option is appropriate if you need a more manageable way to pay your tax debt without causing financial stress

– Types of installment agreements:

– Short-Term Payment Plan: Pay within 120 days.

– Long-Term Payment Plan: Monthly payments over an extended period.

– How to apply:

– Use the IRS Online Payment Agreement tool.

– Complete Form 9465, Application for Installment Agreement.

– Provide financial information if necessary.

 

Currently Not Collectible (CNC) Status

If you cannot pay your tax debt due to financial hardship, you may request that your account be placed in Currently Not Collectible status. This means the IRS temporarily stops collection efforts, although interest and penalties continue to accrue.

Eligibility Criteria:

– Demonstrate that you cannot simultaneously pay your basic living expenses and tax debt.

– Submit financial documentation.

– Application Steps:

– Contact the IRS to apply for CNC status.

– Provide the required financial information.

 

Penalty Abatement

If you have been charged penalties for failure to file or pay taxes on time, you may be eligible for a reasonable cause penalty abatement. This option can reduce or eliminate penalties, easing your financial burden.

– Common reasons for penalty abatement:

– Natural disasters.

– Serious illness or death in the family

– Inability to obtain records

– How to apply:

– Write a letter to the IRS explaining your situation.

– Provide supporting documentation.

 

3. Special hardship considerations

Innocent Spouse Relief

You may be eligible for innocent spouse relief if your spouse or former spouse misreported items or omitted income on your joint tax return. This may exempt you from additional taxes owed.

– Types of Relief:

– Innocent Spouse: Relief from additional taxes you owe because your spouse (or former spouse) failed to report income.

– Separation of Liability Relief: Splits the additional tax between you and your spouse.

– Equitable Relief: This applies when you do not qualify for the other types of relief but face an unfair tax liability.

Application process:

– File Form 8857, Application for Innocent Spouse Relief.

– Provide evidence to support your request.

 

Offset Bypass Refund (OBR)

An Offset Bypass Refund prevents your tax refund from being applied to existing tax debt if you are experiencing financial hardship. This can provide immediate financial relief.

– Requirements and application:

– Contact the IRS to apply for an OBR.

– Provide proof of hardship.

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4. State-specific tax relief options

Many states offer their tax relief programs for individuals with financial hardship. These programs may include payment plans, penalty reductions, and even state-specific offers in compromise.

– Research your state’s options:

– Visit your state’s Department of Revenue website.

– Look for tax relief programs and application procedures.

5. Additional support and resources

Nonprofit Organizations

Several nonprofit organizations offer free or low-cost tax assistance to people facing financial hardship. These organizations can help you understand your options and navigate the application processes.

Examples:

– Volunteer Income Tax Assistance (VITA).

– Tax Counseling for the Elderly (TCE)

– Low-Income Taxpayer Clinics (LITC)

Professional tax assistance

Professional help is needed to manage complex tax situations. Tax professionals can provide personalized advice and representation, ensuring the best possible outcome.

– Choosing a professional:

– Look for certified public accountants (CPAs), enrolled agents (EAs) or tax attorneys.

– Make sure they have experience with IRS hardship cases.

 

6. Frequently Asked Questions

 

Q: What is hardship in terms of taxes?

A: Hardship occurs when you cannot meet basic living expenses due to financial hardship, which affects your ability to pay taxes.

 

Q: How do I request a compromise offer?

A: Complete IRS Form 656 and Form 433-A (OIC), submit them along with the application payment or an exemption request, and wait for the IRS to respond.

 

Q: What if I can’t pay my taxes in full?

A: Consider an installment agreement that allows you to pay your tax debt in manageable monthly installments.

 

Q: Can penalties for late filing or late payment be reduced?

A: You may apply for penalty abatement with reasonable cause, such as a natural disaster or severe illness.

 

Q: Are there state-specific tax abatement options?

A: Yes, many states offer their tax relief programs. Check with your state’s Department of Revenue.

 

Q: Can non-profit organizations help with tax relief?

A: Absolutely; organizations such as VITA, TCE, and LITC offer free or low-cost tax assistance to those who need it.

 

Q: Should I seek professional tax help?

A: If your tax situation is complex, professional assistance from a CPA, tax advisor, or tax attorney can be very beneficial.

 

Final Thoughts.

 

Navigating tax relief options during economic hardship can be overwhelming, but you don’t have to do it alone. Newnity Taxes & Solutions is here to help you every step of the way. By understanding and utilizing the programs and resources available, you can ease your financial burden and work toward a more stable future.