IRS Form 1127 (2014): Payment Extension to Undue Hardship

What IRS Form 1127 (2014) Is For

IRS Form 1127 (2014) is an official application for an extension of time to pay federal taxes when immediate payment would cause undue hardship. It allows individual taxpayers, estates, and specific organizations to postpone their tax payment without violating tax laws. The Internal Revenue Service (IRS) considers this request a temporary relief measure rather than an exemption from paying taxes owed. However, this form does not extend the time to file your tax return, and it does not stop interest from accruing on the unpaid tax balance during the extension period.

For detailed help with IRS forms and payment relief, explore our IRS Form Help Center.

When You’d Use IRS Form 1127 (2014)

You would use IRS Form 1127 (2014) when paying your tax bill on time would create financial hardship or result in significant financial difficulties. It applies to several specific tax circumstances:

• Taxes Shown on a Return: You should file the form if paying the tax shown on your return by the due date would force you to sell property or assets at an unfavorable price and cause a financial loss.
  
  
• Deficiency Amounts: You may use the form when the IRS reviews your return and determines that you owe additional tax liabilities, and paying them immediately would create an undue hardship.
  
  
• Resident Aliens or Individuals Abroad: The form is suitable when resident aliens or U.S. citizens residing abroad are unable to gather funds to make tax payments by the regular due date due to limited financial access.
  
  
• Estate or Gift Taxes: You may file the form if an estate tax or generation-skipping transfer tax is due, and paying it immediately would cause financial hardship for the estate or its beneficiaries.

If your extension request is denied, an IRS payment plan may help you pay your taxes over time and avoid further penalties.

Key Rules or Details for the 2014 Tax Year

Several vital rules governed the use of IRS Form 1127 (2014), and understanding them helps ensure proper filing and compliance with tax laws:

• Extension Periods: The Internal Revenue Service (IRS) generally limits extensions to six months for taxes shown on a return or up to 18 months for deficiencies. However, longer extensions may be granted to resident aliens or taxpayers living abroad.
  
  
• Eligibility Criteria: The IRS considered financial hardship valid only when immediate payment would result in significant financial difficulties, such as being forced to liquidate assets at a loss or sell property for less than its market value.
  
  
• Interest and Penalties: Even when an extension is granted, interest on unpaid tax continues to accrue from the original due date, and penalties may apply for late payment unless you demonstrate reasonable cause.
  
  
• Documentation Requirements: The IRS requires detailed financial information, including a statement of assets and liabilities as of the end of the previous month, and a record of income and expenses for the three months preceding the tax due date.
  
  
• Where to File: Taxpayers were required to send the application for extension to the appropriate address listed in the IRS instructions based on their place of residence or the specific type of tax form being filed.

If you incur penalties due to late payment, you may qualify for IRS penalty abatement.

Step-by-Step (High Level)

Filing IRS Form 1127 (2014) requires accuracy and complete documentation to support your claim for undue hardship. The following steps outline the process:

1. Determine Eligibility: Confirm that you meet the eligibility criteria and that your request fits the IRS definition of undue hardship rather than temporary financial hardship.
   
   
2. Gather Financial Documents: Collect basic information such as income, expenses, assets, and liabilities for the three months before your tax payment deadline to demonstrate your financial situation accurately.
   
   
3. Complete the Form: Fill out the form with all required details, including your social security number, total payments, the correct amount owed, and a detailed explanation of your financial hardship.
   
   
4. Attach Required Statements: Include the required financial documentation to avoid having your filing form returned as non-processable. Both the asset and liability statement and the income and expense records must be attached.
   
   
5. Sign and Submit: Sign and date the form, ensuring both spouses sign if it is a joint tax return, and file it before the due date at the appropriate IRS office.
   
   
6. Follow up with the IRS: The IRS reviews each application for extension on a case-by-case basis, so it is essential to check the status if you have not received a response within several weeks.

Taxpayers who cannot pay their full tax debt may consider an IRS Offer in Compromise as a way to settle for less.

Common Mistakes and How to Avoid Them

Taxpayers often make errors that can delay processing or result in the denial of their application for extension. The following are common mistakes and how to avoid them:

• Confusing Time to File and Time to Pay: Many taxpayers incorrectly use Form 1127 when they actually need Form 4868; Form 4868 extends the time to file, while Form 1127 extends the time to pay.
  
  
• Vague Hardship Explanation: Submitting a general statement like “I cannot pay my taxes” is insufficient; you must provide a detailed explanation describing how immediate payment would cause financial hardship or require selling assets at a loss.
  
  
• Missing Financial Attachments: Failing to include either the asset and liability statement or the income and expense summaries makes your filing form non-processable and can result in automatic rejection.
  
  
• Filing After the Due Date: Submitting IRS Form 1127 (2014) after the regular due date or payment deadline weakens your case and increases the likelihood of penalties and interest.
  
  
• Assuming Extension Stops Interest: Even when the IRS grants an extension, interest continues to accrue on unpaid tax until the full amount is paid.

If you have unfiled federal income tax returns, resolve them promptly to avoid additional IRS enforcement.

What Happens After You File IRS Form 1127 (2014)

Once you file IRS Form 1127 (2014), the IRS reviews your financial situation and supporting documents to determine if you qualify for an extension of time. If the IRS approves your request, you will receive a letter specifying the new payment date and any conditions that may be attached. Interest charges will still apply until the tax is fully paid. If your request is denied, you must make payment immediately to avoid additional penalties. Taxpayers who are unable to pay should consult a tax professional or explore alternative arrangements, such as an installment plan or penalty relief options.

FAQs

Can I file Form 1127 after the tax due date?

No, the IRS requires that Form 1127 be submitted on or before the original due date for the tax shown on your return or notice. Filing late typically results in an automatic denial of the extension request.

Does filing Form 1127 stop interest from accruing?

No, even if an extension is granted, interest on unpaid tax continues to accrue from the original due date until the tax is paid in full. The extension only delays collection, not the cost of interest.

Can businesses or estates use Form 1127?

Yes, individual taxpayers, estates, and specific organizations may use this tax form if immediate payment would cause financial hardship or require the sale of property at a loss.

What should I include with my Form 1127 application?

You must include detailed financial information such as income, expenses, assets, and liabilities. These attachments allow the Internal Revenue Service to verify the severity of your financial hardship.

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