Hardship Status
State
There are certain cases where a taxpayer doesn’t qualify for a settlement but also can’t afford payments. You might be on a fixed income or just scraping by—if that sounds like you, you may qualify for a hardship for your tax debt. We can assess your financial condition to determine if you qualify for a hardship status. Although it is a temporary status and requires providing extensive financial documentation to the tax authorities, it can be a good option for some folks. Contact us today for a free consultation to see if you might qualify for hardship status.
Questions?
Is it difficult to negotiate hardship status with the state taxing authorities?
For some states, it’s impossible. They don’t have a formal hardship program and you will always be on their radar to collect as long as you owe the state taxes. For most states, hardship status is difficult to negotiate because they are a smaller entity than the IRS. Whereas the IRS realizes wasted efforts to collect from delinquent taxpayers who can’t pay deter them from collecting from those who can, the states have less inventory and therefore don’t see a huge loss from leaving a debt ‘open’ in their system. More paperwork relating to your financial condition passes through state government hands than the Feds, so the state may know what you list on your application for a vehicle loan and use that against you when you claim there’s less available for state taxes than your new vehicle. So getting the states to grant hardship status for past due taxes is much more difficult than the Feds. Call us today if you need help negotiating hardship for your state tax debt.
Is hardship status a good option for state tax debts?
While getting the IRS to place your account in hardship status often doesn’t make sense in the short term, since the debt just continues to grow and you may have more earning potential down the road when IRS comes to collect again, it is still viable for the taxpayers that won’t have large earnings in the future. With a 10-year collection statute, IRS debts will fall off after 10 years, so if you can remain in hardship for that full cycle, you won’t be responsible for the debt. On the other hand, with state taxing authorities who regularly impose 20-year statutes on taxpayers, letting the debt sit in hardship status makes little sense. Some states have shorter collection statutes than the Feds, so hardship would make sense, but for most states that is not the case. If you aren’t sure if hardship is a good option for your state tax debt, please touch base with us today, and we’d be happy to help.
Should I submit an Offer in Compromise to the state or just request hardship status?
Again, this will depend on your state and what programs they have available to you for tax relief. Typically if you qualify for their Offer program, you would want to go that route over simply requesting the state put your account in hardship status. Since the collection statutes vary for each state, hardship status may not make sense if the state pesters you for 20 years with requests for payment and financial documentation. Offer programs provide finality and a way out from under the tax debt, so that will always be a better option for your state tax debt. However, since so few states offer viable Offer programs, and there may not be very many penalties assessed to the account (since state liabilities are lower than their federal counterparts), then hardship becomes the best option for our clients when the other options don’t make sense. Please reach out if you aren’t sure whether your state has an Offer program, so we can determine if hardship status is a good candidate for your state tax debt.