What the Form Is For

Form 1127 is an IRS application that allows taxpayers to request additional time to pay their federal taxes when immediate payment would cause them undue hardship. This isn't just a convenience—it's a lifeline for taxpayers facing genuine financial difficulty.

The form applies to various types of taxes, including:

• Income taxes
• Self-employment taxes
• Gift taxes
• Withheld taxes on nonresident aliens and foreign corporations
• Taxes on private foundations and certain tax-exempt organizations

It’s crucial to understand that Form 1127 does not extend your time to file your tax return—only your time to pay.
If you need more time to file, use Form 4868 instead.

Form 1127 also differs from installment payment agreements (Form 9465), which spread payments over multiple months. Instead, Form 1127 provides a temporary postponement of the full payment amount.

Understanding “Undue Hardship”

The key threshold is “undue hardship,” which the IRS defines as more than mere inconvenience.
You must demonstrate that paying the tax on its due date would force you to sustain a substantial financial loss—such as selling property at a sacrifice price or liquidating assets under unfavorable conditions.
Simply being short on cash or facing difficulty arranging funds doesn’t automatically qualify as undue hardship.

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When You’d Use It (Late/Amended Scenarios)

You should file Form 1127 as soon as you become aware that you cannot pay your tax liability without experiencing undue hardship. Timing is critical:

For Taxes Shown on a Return

Form 1127 must be received by the IRS on or before the due date of that return (not including any filing extensions).
For 2014 individual income tax returns, this meant April 15, 2015 (or June 15, 2015 if you had no U.S. withholding).

For Deficiency Amounts

If you owe taxes after an IRS examination, Form 1127 must be received by the due date shown on your tax bill or notice of deficiency.

If you filed your return on time but later realize you can't pay by the deadline, submit Form 1127 immediately—ideally before the payment due date passes.

If you've already missed the deadline and are facing collection action, Form 1127 can still be filed to request relief from continued enforcement, though you'll likely owe penalties and interest.

You cannot use Form 1127 if your deficiency resulted from negligence, intentional disregard of tax rules and regulations, or fraud with intent to evade tax.

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Key Rules for 2014

Extension Periods

Generally, the IRS would not grant an extension exceeding six months for taxes shown on a return.
However, if you were outside the United States, an extension longer than six months might be granted.

For deficiency amounts, extensions were typically limited to 18 months from the payment due date, with an additional 12 months possible in exceptional circumstances.

Documentation Requirements

Applications had to include both of the following (or they would be rejected as non-processable):

• A statement of assets and liabilities as of the end of the previous month, showing book and market values of assets and indicating whether securities were listed or unlisted
• An itemized list of income and expenses for each of the three months prior to the tax due date

Interest and Penalties

Interest accrued on any unpaid tax from the original due date until full payment, regardless of whether an extension was granted.
If you failed to pay within the granted extension period, penalties would also apply.
The extension only postponed collection—it didn't eliminate or reduce the underlying tax liability.

Where to File

For most taxpayers in 2014, Form 1127 was filed with the IRS Advisory Group Manager for the area where you maintained your legal residence or principal place of business.
However, gift tax extensions (Forms 709 or 709-NA) had a special mailing address in Florence, Kentucky.

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Step-by-Step Filing Process (High Level)

Step 1: Determine Eligibility

Before completing Form 1127, use the Determination Chart in the instructions to confirm this is the correct form.
Verify that you're requesting postponement of payment (not filing time) and that you genuinely face undue hardship, not just inconvenience.

Step 2: Gather Financial Documentation

Collect documentation showing your current financial position:

• Complete asset and liability statement as of last month's end
• Income and expense records for the three months before the tax due date
• Evidence of why immediate payment would cause substantial financial loss

Step 3: Complete the Form

Fill out all three parts of Form 1127:

• Part I: Specify the extension period requested and the tax amount owed
• Part II: Provide a detailed, specific explanation of your undue hardship
• Part III: Check both required boxes confirming you've attached financial statements

Step 4: Attach Supporting Documents

Include the required financial statements.
The more thorough and organized your documentation, the better your chances of approval.

Step 5: Sign and Submit

Sign and date the form (both spouses must sign for joint returns or joint deficiencies).
Mail it to the appropriate IRS office before the payment deadline.
Keep copies of everything for your records.

Step 6: Continue Meeting Obligations

While awaiting a decision, continue to file any required returns on time and maintain communication with the IRS if your situation changes.

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Common Mistakes and How to Avoid Them

Mistake #1: Confusing Filing and Payment Extensions

Many taxpayers incorrectly use Form 1127 when they actually need Form 4868.
Remember:

• Form 4868 → Extends time to file
• Form 1127 → Extends time to pay

Mistake #2: Providing Vague Hardship Explanations

Writing “I can’t afford to pay” without specifics leads to denial.
Provide concrete examples such as:

“Payment would require selling my rental property at 30% below market value, resulting in a $45,000 loss.”

Mistake #3: Missing Required Documentation

Failing to include the asset/liability statement or three-month income/expense summary will make your application non-processable.
Ensure both boxes in Part III are checked and attachments included.

Mistake #4: Filing Too Late

Submitting after the payment deadline weakens your case.
File as early as possible—ideally weeks before the due date.

Mistake #5: Assuming Extension Approval Stops Interest

Interest continues to accrue from the original due date.
Plan and budget for this additional cost.

Mistake #6: Requesting Unrealistic Extension Periods

Asking for 12 months when six is the standard maximum raises red flags.
Be realistic and justified in your request.

Mistake #7: Not Following Up

Silence doesn’t mean approval.
Follow up if you haven’t heard back within 4–6 weeks, especially if your deadline is near.

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What Happens After You File

Once the IRS receives your Form 1127, it undergoes review by an Advisory Group Manager or designated IRS official.
The process may take several weeks or longer for complex cases.

What the IRS Reviews

• Financial Documentation: Verifies that your assets, liabilities, income, and expenses support undue hardship.
• Credibility of Your Claim: Generic or unsupported claims will be denied.

Possible Outcomes

1. Approved
   • You’ll receive a letter specifying the new payment deadline.
   • You must pay by that date; interest still accrues.
   • The IRS may require periodic financial updates.
2. Denied
   • You’ll receive a denial letter explaining the reasons.
   • Payment is due immediately to avoid further penalties.
   • You may appeal or pursue other relief (installment agreement, etc.).
3. Returned as Non-Processable
   • Missing documentation or information leads to rejection.
   • You may correct and resubmit, but time may be limited.

After Approval

You’re responsible for paying by the extended deadline.
Failure to pay may result in liens or levies.

If your financial situation changes, notify the IRS:

• Improves: Pay early if possible
• Worsens: Consider Currently Not Collectible status or an Offer in Compromise

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Frequently Asked Questions (FAQs)

Q1: What’s the difference between Form 1127 and an installment agreement?

Form 1127 postpones your payment deadline temporarily (usually up to six months).
An installment agreement (Form 9465) allows monthly payments over time.

Use Form 1127 for short-term hardship; use Form 9465 for longer-term inability to pay.

Q2: Will filing Form 1127 stop IRS collection actions like liens or levies?

Not automatically.
If approved, enforcement may pause during the extension, but it’s case-specific.
Always communicate with your assigned IRS contact.

Q3: Can I file Form 1127 if I’ve already set up a payment plan?

Generally, no.
Form 1127 should be filed before entering any payment arrangement.
If you already have an installment plan, contact the IRS to modify or suspend it.

Q4: Does Form 1127 stop interest and penalties from accruing?

No.
Interest continues to accrue from the original due date, even during an approved extension.
Penalties may still apply but can be abated for reasonable cause.

Q5: What if my Form 1127 is denied—do I have any recourse?

Yes.
You can appeal through the IRS Office of Appeals or consider:

• Installment agreements
• Currently Not Collectible status
• Offer in Compromise

Q6: Can I request a second extension if the first one isn’t enough?

Possibly, but it’s rare.
For deficiency amounts, the IRS may allow up to 30 months total (in exceptional cases).
For regular return payments, six months is generally the max.

Q7: If I’m self-employed and my business cash flow is irregular, does that qualify as undue hardship?

Not automatically.
You must show that liquidating assets or obtaining credit to pay would cause substantial financial loss, not just temporary inconvenience.

Additional Information

For more information and to access Form 1127 and its instructions, visit:
👉 https://www.irs.gov/forms-pubs/about-form-1127