What Form 1127 Is For

Form 1127 is your lifeline when you owe the IRS money but paying on time would create a genuine financial crisis. Think of it as a formal request to the IRS saying, “I acknowledge I owe this tax, but paying it now would force me to sell assets at a loss or cause serious financial damage.”

This form applies to various types of taxes including income taxes, self-employment taxes, gift taxes, and certain other specialized taxes. It can be used in two situations: when you owe tax shown on a return you're filing, or when the IRS has examined your return and determined you owe additional money (called a “deficiency”).

Important distinction: Form 1127 does NOT give you more time to file your tax return—that's what Form 4868 is for. Form 1127 only extends the deadline to pay taxes you already owe or will owe. You still need to file your return on time (or get a filing extension separately).

IRS Form 1127

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

The timing for filing Form 1127 is critical and depends on your situation:

For taxes on an upcoming return: You must submit Form 1127 on or before the original due date of your tax return (not counting any filing extensions). For most individual 2017 income tax returns, that original deadline was April 17, 2018. If you missed this deadline, Form 1127 won't help—you'd need to explore other payment options like installment agreements (Form 9465).

For a tax deficiency: If the IRS has already examined your return and sent you a bill (called a “notice and demand for payment”), you must file Form 1127 by the payment due date shown on that tax bill. Don't wait—the IRS won't grant an extension if you're already past the deadline.

The “as soon as you know” rule: The IRS instructions emphasize filing Form 1127 “as soon as you are aware of a tax liability or tax deficiency you cannot pay without causing undue hardship.” Waiting until the last minute makes the IRS more skeptical about whether you're truly facing hardship or just procrastinating.

Key Rules or Details for 2017

What “undue hardship” means

It's NOT just inconvenience or “I'd rather not pay right now.” You must prove you'll suffer substantial financial loss—like being forced to sell property at a sacrifice price well below market value, or liquidating business assets needed for operations. The bar is high: think about having to sell your home at a 30% loss in a down market, not just having a tight month financially.

Extension limits

For 2017 returns, the IRS generally won't grant more than 6 months beyond your original payment deadline. However, if you were living abroad, you might qualify for a longer extension. For deficiency amounts, extensions are typically limited to 18 months, with possibly another 12 months in exceptional circumstances.

Automatic disqualifiers

The IRS will NOT grant an extension if your tax deficiency resulted from negligence, intentional disregard of tax rules, or fraud. If you deliberately underreported income or inflated deductions, Form 1127 won't help.

Interest still accrues

This is crucial to understand—even if your extension is approved, interest continues piling up on your unpaid balance from the original due date until you pay. The extension saves you from penalties but not from interest charges.

IRS Form 1127 PDF

Step-by-Step (High Level)

Step 1: Determine if Form 1127 is right for you.

Review the IRS Determination Chart in the instructions. If you just want to pay in monthly installments, use Form 9465 instead. If you need more time to file your return (not pay), use Form 4868.

Step 2: Gather your financial documentation.

This is the heavy lifting. You MUST attach:

• A complete statement of your assets and liabilities from the end of last month, showing both book value and current market value
• An itemized list of all income and expenses for the three months before your tax due date
• Detailed explanation of why paying on time would cause substantial financial loss

Step 3: Complete Part I (Request for Extension).

Enter the original payment due date, the new date you propose to pay (typically up to 6 months later for 2017 returns), and the exact amount you owe. Check whether this is for tax shown on a return or a deficiency amount, and specify your tax year.

Step 4: Complete Part II (Reason for Extension).

This narrative section is your opportunity to make your case. Don't write vague statements like “I can't afford it.” Instead, provide specifics: “Paying $45,000 now would require liquidating my 401(k) with a 10% early withdrawal penalty plus income tax, resulting in $20,000 in additional losses” or “My business has $30,000 in accounts receivable due in 90 days; forcing immediate payment would require selling equipment at auction for 40% below replacement value.”

Step 5: Sign and date.

For joint returns or joint liabilities, both spouses must sign. Unsigned forms are automatically rejected.

Step 6: File at the correct location.

Most taxpayers send Form 1127 to their local IRS Collection Advisory Group Manager (find addresses in IRS Publication 4235). However, gift tax extensions go to a special address in Florence, Kentucky.

Common Mistakes and How to Avoid Them

Mistake #1: Providing only general hardship statements

Writing “I don't have the money” or “This would be difficult” guarantees denial. Fix: Include specific dollar amounts, dates, and consequences. Show calculations demonstrating the substantial loss you'd incur.

Mistake #2: Missing the mandatory attachments

The IRS explicitly states that applications without BOTH required attachments (asset/liability statement AND three months of income/expenses) “will not be accepted.” Fix: Treat these attachments like they're part of the form itself—they're not optional.

Mistake #3: Requesting an extension longer than allowed

Asking for a 12-month extension for 2017 income tax payment will likely result in denial or the IRS only granting 6 months. Fix: Understand the limits (6 months for returns, 18 months for deficiencies) and request a realistic timeline.

Mistake #4: Assuming the extension stops interest

Many taxpayers believe an approved extension freezes all charges. Fix: Remember that interest continues accruing daily at the federal rate from your original due date. Budget for this additional cost.

Mistake #5: Filing too late

Submitting Form 1127 after your payment deadline has passed means automatic denial in most cases. Fix: File as soon as you realize you can't pay, ideally several weeks before the deadline to give the IRS time to review.

Mistake #6: Confusing filing extensions with payment extensions

Some taxpayers think filing Form 4868 (filing extension) also extends their payment deadline. Fix: These are completely separate. You can have a filing extension but still owe penalties if you don't pay (or get Form 1127 approved) by the original deadline.

Mistake #7: Not having a payment plan ready

If you propose to pay in 6 months but have no realistic plan for obtaining the money, the IRS may question your hardship claim. Fix: Explain specifically how you'll pay by the extended deadline (e.g., “My home will complete refinancing,” “Seasonal business income arrives in September,” “Asset sale closes in October”).

What Happens After You File

Initial processing

Your Form 1127 goes to an IRS Advisory Group Manager who specializes in collection matters. Processing times vary, but you should receive a response before your original payment deadline if you filed early enough. The IRS may request additional financial information or clarification.

If approved

You'll receive a written notice granting your extension until the specified date. Mark this new deadline on your calendar in multiple places—missing the extended deadline results in immediate penalties and possible collection action. Continue filing required returns on time, and if your financial situation improves, consider paying earlier to reduce interest charges.

If denied

The IRS will send a letter explaining why your request was rejected. Common reasons include insufficient documentation, failure to demonstrate substantial financial loss, or the deficiency resulting from negligence/fraud. You can respond with additional information, but you should simultaneously explore other payment options like installment agreements. If you receive a denial, contact the IRS immediately to set up alternative arrangements.

Payment requirements

Even with an approved extension, you must pay the full amount (plus accumulated interest) by the extended deadline. The IRS won't send you a reminder bill—it's your responsibility to track this and pay on time. Payment options include IRS Direct Pay, Electronic Federal Tax Payment System (EFTPS), check, or money order.

Penalties

While an approved extension should prevent failure-to-pay penalties during the extension period, penalties WILL apply if you don't pay by the extended deadline. Additionally, if the IRS later determines your hardship claim was fraudulent, you could face accuracy-related penalties.

Additional conditions

The IRS may impose conditions on your extension, such as requiring periodic financial updates or restricting certain financial transactions. These requirements will be specified in your approval letter.

IRS Form 1127 Information

FAQs

Q1: Does Form 1127 stop the IRS from charging me interest on what I owe?

No. Interest continues to accrue on your unpaid tax balance from the original due date until you pay in full, even if your extension is approved. The extension protects you from failure-to-pay penalties during the extension period, but interest charges cannot be waived. Think of it this way: the IRS is essentially giving you an interest-bearing loan.

Q2: Can I use Form 1127 if I just can't afford to pay my taxes but don't face any specific financial emergency?

Probably not. “Undue hardship” requires proof of substantial financial loss, not just cash flow problems or budget constraints. If you simply need to spread payments over time because your budget is tight, an installment agreement (Form 9465) is the appropriate tool. Form 1127 is for situations where immediate payment would force you to liquidate assets at significant losses.

Q3: What's the difference between Form 1127 and an installment agreement?

Form 1127 gives you a lump-sum extension—you pay nothing now and pay the full amount later by a specific date. An installment agreement lets you make monthly payments over time (typically up to 72 months). Form 1127 requires proving undue hardship; installment agreements don't. Most taxpayers who simply need more time to pay find installment agreements easier to obtain and more manageable.

Q4: I got a filing extension using Form 4868 for my 2017 return—does that extend my payment deadline too?

No. Form 4868 only extends your deadline to file the actual tax return (from April 17, 2018 to October 15, 2018 for most individual returns). You're still expected to pay at least 90% of your tax liability by the original April deadline to avoid penalties. If you can't pay by April, you need Form 1127 separately.

Q5: Can I request multiple extensions if I still can't pay after the first extension expires?

Possibly, but it's difficult. The IRS typically grants only one extension per tax year for amounts shown on returns. For deficiencies, you might get an initial 18-month extension plus one additional 12-month extension in exceptional circumstances, but “exceptional” is a high bar. If you know you'll need longer, consider requesting the maximum allowed initially, or explore an installment agreement instead.

Q6: What happens if the IRS denies my Form 1127 request?

You have options. First, you can respond with additional documentation addressing the IRS's concerns—sometimes denials result from incomplete information. Second, you can immediately apply for an installment agreement to avoid aggressive collection action. Third, if you can't pay at all, you might qualify for Currently Not Collectible status or an Offer in Compromise. Don't ignore a denial—contact the IRS promptly to arrange an alternative.

Q7: For my 2017 taxes, do I need to file Form 1127 by April 2018 even if I haven't finished my tax return yet?

This is tricky. Form 1127 asks for the specific amount you owe, which you might not know precisely if your return isn't complete. However, the form must be filed by your return's original due date. Your best approach: prepare your 2017 return enough to calculate your tax liability, file Form 1127 with that amount before the April deadline, then file your actual return by the filing deadline (or extended deadline if you also filed Form 4868). Estimating too low could cause problems, so be as accurate as possible.

For More Information

• IRS Publication 594 (The IRS Collection Process) provides context for various payment options
• IRS Publication 4235 (Collection Advisory Offices Contact Information) lists where to send Form 1127
• For 2017-specific tax rate schedules and calculations, see the 2017 Form 1040 instructions

This summary is based on IRS guidance and Form 1127 instructions available at IRS.gov. Tax situations vary, and consulting a tax professional is recommended for complex cases.