Virginia Tax Debt Hardships

If taxpayers simply cannot afford to pay their income taxes, they may qualify for hardship status. Hardship status applies to individuals, limited liability companies (LLCs), proprietors, sole-proprietors, and partnerships.

The Internal Revenue Service (IRS) operates on voluntary compliance, meaning that the IRS will assume taxpayers will file and pay their taxes on the date they are due. Some taxpayers are unable to meet their tax income debt obligations in an allotted time frame, thus triggering a series of collection activities that may result in serious penalties and fines.

It is important for all taxpayers to know their rights when dealing with Virginia tax debt hardships. While proving financial hardship is not easy, it may be possible with the help of a skilled tax attorney who is knowledgeable on the subject of hardship.

How “Status 53” Affects Tax Debt Obligations

The Internal Revenue Service (IRS) has provided several options for taxpayers that are unable to pay the income taxes they owe. One of them comes in the form of a brief “pause” on the collection status, otherwise known as Status 53. The collector or IRS representative will generally file Form 53 (Report of Currently Not Collectible Taxes) when one provides documentation of financial hardship. In some cases, if a collector is well aware of the taxpayer’s situation, they may be willing to file this for the individual.

To obtain noncollectable status, taxpayers will typically complete Form 433-F, also known as Collection Information Statement for Wage Earners and Self-Employed Individuals. In some cases, the IRS may request the taxpayer to complete Form 433-A which helps determine eligibility for payment plans and noncollectable status via financial information. A meticulous attorney could help a person fill out the forms.

These forms request a substantial amount of detailed financial information from the taxpayer. Notably, the IRS will take this information and determine one’s collection potential, or ability to pay them based on the financial information provided. Some common information and documents that are required include:

  • Personal information
  • Employment information
  • Any and all income types
  • Bank and financial information
  • Information regarding any legal proceedings
  • Monthly bills and expenses (from the last three months)
  • Copies of recent tax return(s)

If the IRS looks at one’s assets and sees that there is no equity in them or if seizing them to pay will lead to financial hardship, obtaining hardship status may be more likely for Virginia tax debt.

Undue Hardship Extension

Another option to combat financial hardship in Virginia is obtaining an extra six months to pay the total tax debt amount. During this time, the IRS will not charge any penalties but interest will still accrue on the balance owed.

This extension is granted to taxpayers that will fall into undue hardship if the tax debt is paid on time. Now, it is important to understand that undue hardship is more than an inconvenience. The taxpayer must be able to show a substantial financial loss.

Helping Virginians Qualify for Tax Relief

There are numerous situations where people, through circumstances out of their control, find themselves unable to satisfy their tax debt. The IRS and state collection agencies will continue to pursue said debt until the taxpayers take action.

Gaining a better understanding of Virginia tax debt hardships through a knowledgeable lawyer who can provide sound legal insight can help make the taxation process fair. To learn more, call today.