What Form 1127 Is For

Form 1127 is the IRS form taxpayers use to request an extension of time to pay federal taxes when immediate payment would cause serious financial hardship. It's important to understand that this is not a form to extend the time to file your tax return—it's specifically for extending the payment deadline when you're facing genuine financial difficulties. IRS.gov

Under Internal Revenue Code Section 6161, Form 1127 allows eligible taxpayers to request additional time to pay:

• The tax shown on their return (the amount you calculated you owe)
• A deficiency amount (additional tax the IRS determined you owe after examining your return)

The form applies to various types of federal taxes, including income taxes, self-employment taxes, gift taxes, taxes on private foundations, and withholding taxes on nonresident aliens and foreign corporations.

Understanding “Undue Hardship”

The key concept here is “undue hardship,” which has a specific legal meaning. According to the IRS, undue hardship means more than just inconvenience—you must demonstrate that paying your tax on the due date would cause you to suffer a substantial financial loss. The classic example is being forced to sell property at a sacrifice price (below fair market value) just to pay your tax bill.

When You’d Use Form 1127 (Late/Amended)

Filing Deadlines

Timing is critical with Form 1127. You must file it:

• On or before the original due date of your tax return (not counting any extensions to file) if you're requesting to extend payment of tax shown on that return
• On or before the payment due date indicated in your tax bill if you're requesting to extend payment of a deficiency the IRS has determined

For the 2011 tax year, if you're requesting an extension for income tax shown on your 2011 Form 1040, you would need to file Form 1127 by April 15, 2012 (or the next business day if that date fell on a weekend or holiday).

Important Notes

• File Early: Form 1127 should be filed as soon as you become aware you cannot pay your tax liability without hardship—don't wait until the last minute.
• Not for Amended Returns: While Form 1127 isn't typically for amended returns, if you file Form 1040X and owe more tax, and paying it causes undue hardship, you can file Form 1127 for that additional amount.

Key Rules for 2011

Extension Periods

• For tax shown on a return: Up to 6 months from the original due date.
• For deficiency amounts: Generally limited to 18 months, with possible additional 12 months in exceptional cases.

The “Undue Hardship” Standard

You must prove that paying the tax when due would result in substantial financial loss—not mere inconvenience.

Mandatory Documentation

Attach both of the following:

1. A statement of assets and liabilities (book and market values).
2. An itemized list of income and expenses for the three months prior to the due date.

Interest and Penalties

• Interest continues: Even if approved, interest accrues from the original due date.
• Penalties: Failure to pay by the extended deadline results in penalties.
• Fraud/Negligence: No extension is granted for deficiencies caused by negligence or fraud.

Step-by-Step Guide (High Level)

Step 1: Determine Eligibility

Assess whether you meet the “undue hardship” standard—would paying require you to sell assets at a loss or make you unable to afford essentials?

Step 2: Gather Financial Documentation

Prepare both required attachments:

• A detailed balance sheet (assets and liabilities)
• Itemized income and expenses for the past three months

Step 3: Complete Part I – Request for Extension

Enter:

• Original due date
• Requested extension date (up to 6 or 18 months)
• Tax amount owed
• Type of tax (return or deficiency)
• Relevant form number and tax year

Step 4: Complete Part II – Reason for Extension

Provide a detailed, specific explanation of undue hardship with quantifiable details—avoid vague statements like “I can’t pay.”

Step 5: Complete Part III – Verify Supporting Documentation

Check both boxes confirming attachments.

Step 6: Sign and Date

Both spouses must sign if jointly liable.

Step 7: File at the Correct Location

• Most taxpayers: File with your local IRS Advisory Group (see Publication 4235).
• Gift tax: Mail to IRS Center, Cincinnati, OH 45999.

Step 8: Keep Copies

Retain copies for your records.

Common Mistakes and How to Avoid Them

Mistake #1: Filing After the Deadline

Form 1127 must be received by the IRS on or before the due date. File early.

Mistake #2: Vague Hardship Explanations

General statements like “I can’t afford to pay” are insufficient. Quantify the loss.

Mistake #3: Missing Required Documentation

Failure to include both financial statements means automatic rejection.

Mistake #4: Incomplete Financial Information

Provide full and transparent financial details.

Mistake #5: Confusing with Filing Extension

Form 1127 extends payment time—not filing time. Use Form 4868 or 2350 for filing extensions.

Mistake #6: Not Signing the Form

Unsigned applications are invalid. Both spouses must sign if liable.

Mistake #7: Sending to the Wrong IRS Office

Addresses differ by tax type—check Publication 4235.

What Happens After You File

Initial Review

IRS checks if your application is complete and may request missing info.

Financial Analysis

IRS verifies your financial data and may ask for additional proof or alternatives (e.g., installment plan).

Decision Process

If Approved

• You’ll receive a letter with the new payment deadline and amount.
• Interest continues to accrue.
• Pay by the new deadline to avoid penalties.

If Denied

• IRS will explain the reason for denial.
• Taxes remain due; penalties and interest continue.
• Contact IRS immediately for options (see Publication 594).

If Returned

• Incomplete applications can be resubmitted—but watch deadlines.

Additional Conditions

IRS may impose conditions such as partial payments or collateral.

FAQs

Q1: Does Form 1127 stop penalties and interest?

No. Interest accrues until the tax is paid, and penalties may apply if not paid by the extended deadline.

Q2: Can I use Form 1127 instead of making estimated tax payments?

No. It only applies to existing due taxes, not estimated ones.

Q3: What if I can’t pay even after the extension?

Contact the IRS about installment options (Form 9465) or see Publication 594.

Q4: Is there a fee to file Form 1127?

No filing fee. Interest still applies.

Q5: What’s the difference between Form 1127 and Form 9465?

Form 1127 = temporary payment extension.
Form 9465 = long-term installment plan.

Q6: Will filing Form 1127 trigger an audit?

No, but IRS reviews your financial info closely for accuracy.

Q7: Can I file Form 1127 if I’m already on an installment plan?

Generally no, unless for a new liability beyond the current plan.

Additional Resources

• IRS Form 1127 Page: www.irs.gov/form1127
• Publication 594: The IRS Collection Process
• Publication 4235: Collection Advisory Group Addresses

Important: If you're struggling to pay taxes, act early. The IRS offers relief options—proactive communication gives you more choices.