Financial Hardship Is Real
I hear it every week. Someone lost their job. Someone had a medical emergency. Someone went through a divorce and their financial life fell apart. They owe the IRS and they genuinely cannot pay. The IRS recognizes that some people are in genuine financial hardship and they have programs to address it.
Currently Not Collectible
The primary hardship program is currently not collectible status. If your monthly income minus your allowable expenses leaves zero or negative disposable income, the IRS will classify your account as CNC. All collection stops. No levies, no garnishments, no phone calls. The collection statute continues to run, which means the debt can expire entirely.
Reduced Payment Installment Agreements
If you have some disposable income but not enough to full-pay the debt before the collection statute expires, the IRS can set up a partial pay installment agreement. You pay what you can afford monthly and the remaining balance is forgiven when the statute expires.
Offer in Compromise Based on Economic Hardship
Even if the math says you could pay more, the IRS can accept an offer in compromise under effective tax administration if paying the full amount would create an economic hardship. This is a discretionary determination that considers your age, health, earning potential, and other factors beyond the basic formula.
Taxpayer Advocate Service
The Taxpayer Advocate Service is an independent organization within the IRS that helps taxpayers who are experiencing economic hardship as a result of IRS actions. If the IRS levied your bank account and you cannot pay rent, the TAS can intervene and get the levy released on an emergency basis. A tax attorney works with the TAS when the normal channels are too slow.
Penalty Abatement for Hardship
If your hardship caused you to file late or pay late, the penalties can be abated for reasonable cause. Medical emergencies, natural disasters, death of a family member, and other circumstances beyond your control are all valid bases for penalty removal. The tax attorney documents the hardship and presents the reasonable cause argument to the IRS.