Taxpayers can apply for a 6-month extension to pay their taxes if they can show that paying them by the due date will cause an undue financial hardship. The IRS does not automatically grant a 6-month extension to pay the taxes as it would for filing a return; it requires the taxpayer to prove financial hardship before it will grant the payment extension.
The term “undue hardship” means more than an inconvenience: the taxpayer must prove that substantial financial loss will result if the tax payment is made on the due date. The extension will not be granted based on a general statement of hardship.
Considering the acute impact that COVID-19 has had on the U.S. workforce and how quickly the epidemic has swept across the country, taxpayers may have an undue hardship argument to make in requesting an extension of time to pay their taxes.
To apply for a payment extension, the taxpayer must file Form 1127 along with:
- A statement of assets/liabilities
- An itemized list of income/expenses for each of 3 months prior to the tax due date
- A statement explaining why paying the tax by the due date would create undue financial hardship
Form 1127 can be filed for income taxes and self-employment taxes. It also must be filed by the tax payment due date, which is July 15, 2020. Somerset can help determine where to file the form based on type of tax payment extension being requested. Penalties will not be assessed if the payment extension is granted, but interest on the amount owed will continue to accrue.
If you need help exploring your options to settle your tax debt or applying for an extension to pay your taxes, please contact Patrick Wanzer, CPA, CTRS at 317.472.2188.