Written by K.H. Koehler
Challenging financial situations can be incredibly stressful, especially when tax obligations collide with volatile crypto markets. For investors who’ve faced losses or liquidity issues while still owing taxes, the IRS Hardship Program can provide crucial breathing room. It offers temporary protection from collection actions, such as wage garnishments, bank levies, or property seizures, giving taxpayers, including those navigating crypto-related liabilities, time to stabilize their finances and recover.
The IRS process is complex, and it can feel overwhelming. Getting professional help can lighten the load. You can also look for an advocate, such as Tax Law Advocates, to help walk you through the complexities of dealing with the IRS and the programs they offer to help you bounce back.
Getting Ahead After Falling Behind
“Americans failed to pay $688 billion in taxes on their 2021 returns, a record level, according to a new estimate from the IRS,” CBS News reports. “The [IRS] agency said that it is taking ‘urgent’ steps to increase compliance, such as auditing more high-income taxpayers as well as businesses and partnerships.”
The “tax gap,” as it is called, is a problem for nearly 12 million Americans. And many programs that the IRS implemented during the COVID-19 pandemic to offer relief have already lapsed or are being replaced. But there are still ways of dealing with your debt.
What Is the IRS Hardship Program?
The program, called Currently Not Collectible (CNC) status, is designed to give both individuals and businesses a break when they can’t pay their taxes. It allows them to work up a plan without sacrificing the basics like housing, food, transportation, and medical care. It isn’t a forgiveness program; your debt isn’t magically going away. It is a temporary halt in collections to acknowledge your difficult situation.
Who Can Qualify for IRS Hardship Status?
The IRS considers several factors, including your income, your allowed living expenses, and whether you have significant assets that could be used to pay your debt.
“To get a hardship for back taxes, file all returns, submit a financial statement (Form 433F or 433A), and show you cannot currently pay,” Michael D. Sullivan, a former IRS tax agent, explains.
You may be granted CND status if your basic living expenses are equal to or more than your income, and you don’t have any available assets.
The Good and the Bad
The program can stop aggressive collection and allow you to focus on your basic needs. But there is a downside: Interest and penalties on your debt will still accrue, which means the total amount you owe will grow over time.
It’s also temporary. The IRS will check your finances to see if your situation has improved. If it does, the IRS might end your hardship status and resume collections.
How You Can Apply for the Program
You must carefully prepare and submit many documents, such as proof of income, a detailed breakdown of your monthly expenses, a list of your assets, and documentation for any outstanding debts. The most crucial part is submitting Form 433, which gives the IRS a complete picture of your finances. After you submit everything, the IRS will usually request an interview to assess your financial situation and confirm everything you’ve provided.
All Is Not Lost
Whether your financial setback stems from traditional income, business struggles, or a downturn in your crypto holdings, relief is possible. The IRS Hardship Program reminds taxpayers that even in emerging sectors like crypto, financial challenges don’t have to lead to crisis. With professional guidance and the right filings, you can pause collections, regroup, and plan for a more stable financial future, both on-chain and off.
