A Comprehensive Guide for Taxpayers

If paying your taxes on time would cause significant financial harm—beyond just inconvenience—Form 1127 may offer relief. This guide explains when to use it, what qualifies as undue hardship, and how to properly complete and submit the form to the IRS.

1. What the Form Is For

Form 1127 allows taxpayers to request additional time to pay federal taxes when immediate payment would cause undue hardship, defined by the IRS as a substantial financial loss. This is not the same as lacking liquidity or needing more time to adjust your budget.

You may use Form 1127 to request extra time to pay:

• Income tax (individual or corporate)
• Self-employment tax
• Withholding taxes on nonresident aliens or foreign corporations
• Gift tax
• Certain taxes on private foundations and exempt organizations
• Deficiency assessments (after an IRS audit)

Important: This form extends the time to pay, not the time to file.

• To extend filing time, use Form 4868 (individuals) or Form 2350 (for taxpayers abroad).
• For payment plans, use Form 9465 (Installment Agreement Request) instead.

What Qualifies as “Undue Hardship”

To succeed, you must show that paying now would cause substantial financial loss, such as:

• Selling property at a steep loss
• Liquidating investments under unfavorable conditions
• Jeopardizing your ability to maintain essential living or business operations

Simply stating “I don’t have the cash” or “it would be difficult” is insufficient.

2. When You’d Use It (Late/Amended Situations)

You can use Form 1127 in two key cases:

A. Before the return due date

If you anticipate owing taxes you cannot pay without hardship, file by the return’s original due date (not the extended filing date). The IRS must receive your request by then.

B. After an IRS examination (deficiency case)

If you owe additional tax due to an audit, file Form 1127 before the payment due date shown on the notice.

Filing late—after your due date or once you’re in collections—renders Form 1127 invalid. It cannot stop collection actions or substitute for other relief forms.

For estate taxes, use Form 4768 instead.

3. Key Rules for 2010

Extension Periods

• Tax shown on a return: Up to 6 months (or longer if living abroad)
• Deficiency amounts: Up to 18 months, with a potential additional 12-month extension in exceptional cases

Interest and Penalties

• Interest accrues from the original due date until paid—approval does not stop interest.
• Penalties are avoided only if payment is made by the extended deadline.

Required Documentation

You must attach:

1. Statement of assets and liabilities – showing book and market values (including listed/unlisted securities).
2. Itemized statement of income and expenses – for the three months prior to the tax due date.

Applications missing either are deemed non-processable.

Where to File

Send Form 1127 to your local IRS Advisory Group Manager, listed in IRS Publication 4235, unless:

• You’re requesting for gift tax — send to the Cincinnati Service Center.

For joint filers, both spouses must sign.

4. Step-by-Step Filing Process

Step 1: Gather Documentation

Collect:

• Financial statements (bank/investment records, property appraisals)
• Three months of income and expenses
• Details on assets (with market and book value)

Step 2: Complete Part I — Tax Information

List:

• The form number and tax year
• The total amount owed
• The original due date and your proposed payment date
• Whether this relates to a return balance or a deficiency assessment

Step 3: Complete Part II — Explain Your Hardship

Provide a specific and detailed explanation of your hardship. Describe:

• Which assets you’d need to sell
• How much loss would occur
• Why payment now would cause substantial, not temporary, loss

Vague statements (“I can’t pay”) will result in denial.

Step 4: Complete Part III — Attach Supporting Documentation

Check both boxes confirming that your asset/liability and income/expense statements are attached. Without them, the IRS will not process your application.

Step 5: Sign and Date

If married filing jointly, both must sign. Preparer’s signature is also required if someone else completes the form.

Step 6: Mail to Correct IRS Office

Send to your regional Advisory Group Manager (see Publication 4235) or the Cincinnati Service Center for gift taxes.

Step 7: Wait for IRS Review

Do not assume approval. Continue preparing to pay by your requested date. If approved, the IRS will issue an official letter granting an extension.

5. Common Mistakes and How to Avoid Them

1. Confusing Form 1127 with a Filing Extension

• Explanation: Form 1127 only extends your payment time, not your filing deadline.
• Solution: Use Form 4868 if you need more time to file your tax return.

2. Giving Vague Hardship Explanations

• Explanation: General statements about inability to pay are not sufficient.
• Solution: Provide detailed, quantifiable evidence of financial hardship or loss.

3. Missing Documentation

• Explanation: Incomplete financial statements or unsigned forms lead to rejection.
• Solution: Attach all required schedules and sign both authorization boxes.

4. Filing Too Late

• Explanation: The IRS must receive the form by your payment due date.
• Solution: File at least two weeks early to ensure timely processing.

5. Assuming No Interest Accrues

• Explanation: Even if approved, interest continues to accrue on the unpaid balance.
• Solution: Include estimated interest costs in your repayment plan.

6. Using Form 1127 Instead of an Installment Agreement

• Explanation: Form 1127 provides short-term payment relief, not long-term solutions.
• Solution: Use Form 9465 if you need an installment plan.

7. Missing the Extended Due Date

• Explanation: The IRS does not send reminders for approved extensions.
• Solution: Mark your new payment date and ensure payment is made on time.

6. What Happens After You File

Review Process

Your local IRS Advisory Group Manager reviews your application. They may request additional documentation before deciding. Approval depends on how well you demonstrate undue hardship.

Possible Outcomes

1. Approved: You’ll receive a letter specifying the extended due date and any conditions. Interest continues to accrue.
2. Denied: You’ll be told why and reminded of your payment deadline. You can pursue installment plans or other relief.
3. Returned as Incomplete: Missing documentation prevents processing—does not stop the clock on your due date.

Tip: If denied, respond quickly to explore alternatives (installment agreements or Currently Not Collectible status).

Appeals

If you disagree with a denial, you may request an appeal or reconsideration. The denial letter will outline your appeal rights.

7. Frequently Asked Questions (FAQs)

Q1: Can I file Form 1127 after my payment deadline has passed?

No. Once your due date passes, Form 1127 no longer applies. You’ll need to contact the IRS about installment agreements or other collection relief.

Q2: Does approval stop interest or penalties?

No. Interest always accrues from the original due date. However, penalties for late payment won’t apply if you pay by the extended deadline.

Q3: How is this different from an installment agreement?

Form 1127 postpones the full payment (for up to 6–18 months). Installment agreements spread payments over time. Choose based on whether your hardship is temporary or long-term.

Q4: What qualifies as “undue hardship”?

It must involve substantial loss, like being forced to:

• Sell property below fair value
• Liquidate long-term investments at a penalty
• Risk losing business assets or income sources

Not qualifying examples: delaying discretionary expenses or borrowing funds.

Q5: Can I file Form 1127 electronically?

As of 2010, no. You must mail a signed paper form. (Electronic options may be available in later years.)

Q6: What if my financial situation changes after I file?

If it improves, pay early to stop interest. If it worsens, contact the IRS before the extended date to discuss further options.

Q7: Does filing Form 1127 affect my credit score?

No. The form itself isn’t reported to credit agencies. However, failure to pay by the extension’s end could lead to a tax lien, which would affect your credit.

For More Information

Visit IRS.gov/forms-pubs/about-form-1127
or consult IRS Publication 594 (The IRS Collection Process) for broader payment options.

In summary:
Form 1127 is a valuable but narrowly tailored relief tool—ideal for temporary financial distress that would cause real, documentable financial harm if taxes were paid immediately. Accuracy, timeliness, and thorough documentation are critical for approval.