What the Form Is For

Form 1127 is the IRS document taxpayers use to request extra time to pay certain federal taxes when paying by the normal deadline would cause “undue hardship”—meaning more than just inconvenience. Specifically, you must demonstrate that paying on time would force you to suffer a substantial financial loss, such as having to sell property at a sacrifice price.

This form applies to various tax types including income taxes, self-employment taxes, gift taxes, taxes on private foundations, and amounts determined as deficiencies after an IRS examination of your return.

Think of Form 1127 as a formal request to the IRS saying:

“I owe this tax, I acknowledge it’s due, but paying it right now would genuinely damage my financial situation—not just make things tight, but cause real harm.”

The IRS takes these requests seriously but requires substantial proof that you truly face hardship, not merely temporary cash flow issues.

It’s important to understand that:

• Form 1127 is not an extension to file your tax return (that’s Form 4868 for individuals).
• It’s not a payment plan or installment agreement (that’s Form 9465).
• Form 1127 is specifically for requesting a postponement of full payment for a limited time period due to documented financial hardship.

When You’d Use It (Late/Amended)

You should file Form 1127 as soon as you realize you cannot pay your tax liability by the due date without suffering undue hardship. There are two primary scenarios:

1. For Taxes Shown on Your Return

If you’re filing your tax return and know you’ll owe taxes you cannot pay without hardship, you must submit Form 1127 on or before the return’s original due date (not including any filing extensions).

For example:
If your 2018 individual income tax return was due April 15, 2019, your Form 1127 had to arrive at the IRS by that same date, even if you obtained a filing extension to October 15, 2019.

2. For Deficiency Amounts

If the IRS examines your return and determines you owe additional tax (called a deficiency), you’ll receive a tax bill with a payment due date. Your Form 1127 must be filed on or before that payment deadline stated in the bill.

3. Late or Amended Situations

Form 1127 does not apply to amended returns in the traditional sense. If you’re filing an amended return that creates a new tax liability, you’d be requesting an extension for “tax shown on a return.”

The key distinction is timing: you must anticipate the hardship and file Form 1127 before payment becomes due, not after you’ve already missed the deadline.

Key Rules for 2018

Definition of Undue Hardship

The IRS defines undue hardship as “more than an inconvenience.” You must prove that paying the tax when due would require you to sustain a substantial financial loss—for example, being forced to sell assets significantly below market value or liquidating a business at a loss.

Simply lacking liquid cash or needing to borrow money generally doesn’t qualify.

Exclusions

Extensions will not be granted if your tax deficiency resulted from:

• Negligence
• Intentional disregard of tax rules or regulations
• Fraud with intent to evade tax

In these cases, the IRS expects immediate payment, regardless of hardship.

Filing Location

In 2018, Form 1127 was filed with your local IRS Advisory Group Manager for most taxes.
However, gift tax applications (Form 709) had a special address:
Department of the Treasury, Internal Revenue Service, Stop 824G, 7940 Kentucky Drive, Florence, KY 41042-2915.

Joint Returns

If Form 1127 relates to a joint tax return or joint tax liability, both spouses must sign and date the application.
If one spouse cannot sign, follow the alternative signature procedures outlined in IRS guidance.

Step-by-Step (High Level)

Step 1: Determine Eligibility

Use the IRS Determination Chart to confirm Form 1127 applies to your situation.
Don’t confuse it with:

• Form 4868 – filing extension for individuals
• Form 4768 – estate tax payment extension
• Form 9465 – installment agreement

Step 2: Gather Financial Documentation

Prepare two mandatory attachments:

1. A complete statement of assets and liabilities as of the end of the prior month, showing both book and market values and noting whether any securities are listed or unlisted.
2. An itemized list of income and expenses for each of the three months immediately before the tax due date.

Without both documents, your application will be rejected as incomplete.

Step 3: Complete the Form

Fill in your identifying information (name, address, SSN or EIN).
In Part I, specify:

• The extension period you’re requesting
• The total tax owed
• The tax type and year

In Part II, write a detailed narrative explaining your undue hardship. Be specific about how immediate payment would cause financial loss. Avoid vague statements like “I can’t afford it.”

Step 4: Check the Certification Boxes

In Part III, check both boxes confirming you’ve attached the required asset/liability statement and three-month income/expense documentation. Missing these automatically invalidates your application.

Step 5: Sign and Date

Both spouses must sign for joint returns.
If prepared by someone else, that person should sign as preparer.

Step 6: Submit Timely

Mail the completed package to the appropriate IRS office before your payment due date.
Keep copies of everything for your records.

Common Mistakes and How to Avoid Them

Mistake #1: Missing or Incomplete Documentation

Many applications fail because taxpayers skip the required attachments or provide incomplete financial data.
✅ Avoid this: Prepare detailed, accurate statements for all assets, liabilities, income, and expenses. Include supporting documents when possible.

Mistake #2: Vague Hardship Explanations

Statements like “I don’t have the money” are not enough.
✅ Avoid this: Explain how payment would create substantial loss—include dollar amounts, asset details, and timing considerations.

Mistake #3: Confusing Form 1127 with Other Forms

Taxpayers often mistakenly use Form 1127 when they actually need Form 4868 (filing extension) or Form 9465 (payment plan).
✅ Avoid this: Use Form 1127 only to request a temporary full payment delay for hardship reasons.

Mistake #4: Filing After the Deadline

Form 1127 is ineffective if submitted after the payment due date.
✅ Avoid this: File early—give the IRS time to review before your payment becomes due.

Mistake #5: Unreasonable Extension Requests

Overstating how long you’ll need to pay appears insincere.
✅ Avoid this: Request a realistic timeframe (e.g., two to six months), supported by documentation showing when your situation will improve.

What Happens After You File

Approval

If approved, you’ll receive written notification showing the new payment due date. This postpones collection but doesn’t change your balance due—interest still accrues until paid.

Extension Limits

• Tax shown on a return: Up to 6 months
• Tax deficiencies: Up to 18 months, with a possible additional 12 months for exceptional cases (max 30 months)

Denial

The IRS may deny your request for lack of proof, incomplete documentation, or disqualifying causes (e.g., negligence or fraud).
You’ll receive a letter explaining the reason for denial, and normal collection will resume.

Returned as Nonprocessable

If incomplete, the IRS returns your form for correction. However, the original deadline still applies, so timing is critical.

Additional Conditions

The IRS may add conditions to your approval—like requiring financial updates or restricting certain asset sales during the extension period.

Interest and Penalties

Interest continues to accrue from the original due date until full payment is made.
Failure to pay by the extended deadline can trigger failure-to-pay penalties and renewed collection efforts.

FAQs

1. Does Form 1127 reduce or eliminate what I owe?

No. It only postpones payment. You’ll still owe the full tax amount plus any interest accrued during the extension.

2. Will interest and penalties stop during the extension?

No. Interest accrues continuously from the original due date. Penalties may still apply if payment isn’t made by the extended date.

3. Can I apply if I’ve already missed the payment deadline?

No. Form 1127 must be filed before your due date. Afterward, contact the IRS for options like an installment agreement or Currently Not Collectible status.

4. What if my finances improve before the extension ends?

You should pay early to minimize interest. Contact the IRS to confirm payment application.

5. Can I request a second extension?

Rarely. Second extensions face high scrutiny. If ongoing hardship persists, explore other options like an installment agreement.

6. How long does the IRS take to review?

Expect several weeks to months, depending on case complexity and IRS workload. File early to ensure timely review.

7. What if my application is denied?

You can request reconsideration with additional documentation or pursue alternatives such as:

• Form 9465: Installment agreement
• Currently Not Collectible status
• Offer in Compromise, if eligible

Sources

All information in this article is derived from official IRS publications:

• IRS.gov Form 1127 Information Page
• Form 1127 and Instructions PDF
• IRS Internal Revenue Manual Section 5.1.12.26