IRS Form 1127 (2016): Payment Extension to Undue Hardship

What IRS Form 1127 (2016) Is For

IRS Form 1127 (2016) allows taxpayers facing financial hardships to request an extension of time to pay taxes when immediate payment would cause undue hardship. The Internal Revenue Service considers undue hardship to mean more than an inconvenience; it applies when paying taxes by the due date would create significant financial difficulties, such as forcing the sale of assets below market value or affecting an individual’s ability to maintain economic stability. This form offers temporary relief by granting extra time to meet tax obligations without severe financial loss.

For more information about IRS payment relief forms and guidance, visit our IRS Form Help Center.

When You’d Use IRS Form 1127 (2016)

Taxpayers file IRS Form 1127 (2016) when paying taxes by the regular due date would cause severe financial strain or loss. Below are situations when this form may apply:

1. Tax shown on your tax return: When you cannot pay the amount owed on your income tax return without liquidating assets at a substantial loss or risking personal financial instability.
   
   
2. Deficiency assessment: When the IRS determines that you owe additional tax liabilities after an audit, and paying them immediately would result in financial hardship.
   
   
3. Amended or late payment scenario: When an amended filing increases your tax liability, and paying the new balance would cause undue hardship or delay other essential obligations.
   
   
4. Estate or gift tax obligations: When certain taxes, such as estate tax or generation-skipping transfer taxes, create excessive payment pressure due to limited liquidity.
   
   
5. Resident aliens abroad: When individual taxpayers or resident aliens living abroad require more time to gather funds to satisfy the payment of tax due.

If your extension is denied, you can still apply for an IRS payment plan to pay your tax bill in manageable installments.

Key Rules or Details for the 2016 Tax Year

For the 2016 tax year, the Internal Revenue Service granted extensions under specific regulations that apply on a case-by-case basis. These key rules outline how IRS Form 1127 (2016) functions and what taxpayers must observe before applying.

1. Length of extension granted: For taxes shown on an income tax return, extensions generally may not exceed six months; for deficiencies, extensions can reach up to eighteen months, depending on the case.
   
   
2. Interest charges apply: Even when the IRS approves an extension, taxpayers still owe interest on unpaid federal taxes starting from the original due date until the full payment is made.
   
   
3. Penalty implications: Failure to pay taxes within the approved period covered by the extension can result in additional penalties being added to the interest charges already accrued.
   
   
4. Eligibility criteria: The IRS reviews each applicant’s financial situation carefully to determine if paying taxes by the regular due date would cause undue hardship.
   
   
5. Documentation requirements: The taxpayer must include detailed financial information, such as a list of assets, liabilities, and an income statement, for the three months preceding the filing deadline.

If you receive penalties for late payment, IRS penalty abatement may help reduce or remove some of these charges.

Step-by-Step (High Level)

Filing Form 1127 requires accurate preparation, proper documentation, and careful attention to the instructions provided by the Internal Revenue Service. Each step ensures that taxpayers present a transparent and credible case for their request for an extension of time.

1. Verify necessity: Determine whether IRS Form 1127 is the correct application for extension or if another IRS form, such as Form 9465 for installment agreements, would be more appropriate.
   
   
2. Complete taxpayer information: Enter your name, Social Security Number, and address exactly as they appear on your individual income tax return to ensure consistency with IRS records.
   
   
3. State your reason: Provide a detailed explanation of how paying taxes by the original due date would result in significant financial difficulties or cause the sale of assets at a loss.
   
   
4. Attach financial documentation: Include detailed financial statements showing your assets, liabilities, and income for the third month before the filing deadline to support your claim.
   
   
5. Sign and submit: Sign the tax form accurately and mail it to the appropriate address listed on the IRS website before the filing deadline to avoid processing delays.

If you are unable to pay your full tax liability, you might be eligible for an IRS Offer in Compromise to settle for less than you owe.

Common Mistakes and How to Avoid Them

Many taxpayers make simple errors when filing IRS Form 1127 (2016), which can lead to delays or denials. Understanding these common mistakes helps ensure that the application for extension of time is processed smoothly.

1. Missing required documentation: Applications are often rejected when taxpayers fail to include complete financial statements or income records; always provide every document listed in the IRS instructions.
   
   
2. Vague hardship explanations: Statements that lack detail or evidence weaken your case; describe your financial hardship specifically, including numbers, valuations, and reasons why paying taxes would cause loss.
   
   
3. Filing after the due date: The IRS cannot grant extensions for taxes that are already past due. To remain eligible, submit the form before the original due date.
   
   
4. Confusing payment and filing extensions: Form 1127 only extends the time for payment of tax due; it does not extend the filing deadline for your income tax return.
   
   
5. Unrealistic requests: Asking for an extension longer than permitted under current tax laws may lead to denial; request only the amount of time needed to gather funds responsibly.

If you have unfiled federal income tax returns, it’s important to address them promptly to prevent further penalties.

What Happens After You File Form 1127

Once you submit IRS Form 1127 (2016), the Internal Revenue Service reviews your application on a case-by-case basis. The IRS examines your financial situation, verifies the detailed explanation provided, and determines whether to approve the extension of time for payment of tax due. If the IRS agrees, you will receive written confirmation with the new due date, and interest will continue to accrue until full payment is made. If the request is denied, you may appeal or consult a tax professional to explore other payment options, such as installment agreements or offers based on reasonable cause.

FAQs

Can IRS Form 1127 be used for late filing?

No, IRS Form 1127 only extends the time to pay taxes, not the time to file your income tax return. Taxpayers must still file their return or request a filing extension separately.

Will interest stop accruing after approval?

No, interest continues to accrue on all taxes owed from the original due date until full payment is made, even if the IRS grants an extension of time.

How long does the IRS take to process Form 1127?

The IRS typically takes between four and eight weeks to review the detailed financial information submitted with the application; incomplete documentation can result in additional delays.

Can resident aliens or taxpayers living abroad file Form 1127?

Yes, both resident aliens and individual taxpayers abroad can file Form 1127 if paying taxes by the due date would cause financial hardship or require the sale of assets at a loss.

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