IRS Resolution Disclaimers & Practical Considerations

Due to available equity in real property, the IRS may require taxpayers to apply for a home equity loan or line of credit. The IRS may request a copy of the application and any approval or denial letter before approving hardship-based resolutions, including Currently Not Collectible (CNC) status. While efforts may be made to avoid this requirement, the IRS retains discretion to require it.

The IRS may reject a hardship request and require withdrawals from retirement accounts to satisfy tax liabilities. If funds are inaccessible, the IRS may request documentation demonstrating the inability to access or liquidate these accounts.

Excess assets may disqualify a taxpayer from hardship-based resolutions unless documentation is provided showing limited or no equity. This may include equity loan denial letters for real property and proof that other assets (vehicles, boats, trailers, etc.) have minimal resale value or outstanding encumbrances.

If a taxpayer holds surplus investments (including CDs, stocks, bonds, cryptocurrency, or other securities), the IRS may require liquidation to pay tax debt in full or request justification for why liquidation is not possible.

The IRS applies national and local standards for living and transportation expenses. If substantiation is requested and cannot be provided, hardship eligibility may be denied. If partial substantiation is provided, required monthly payment amounts may increase by the unsupported portion.

Allowable living expenses apply to one property only and may include mortgage or rent, property taxes, insurance, utilities, garbage collection, telephone and cellular service, and internet. All substantiation must be in the taxpayer's name.

When required, the IRS generally accepts documentation from the most recent three months only, including bank statements, paystubs, and expense records. Benefit letters (SSI, SSA, pensions, annuities, distributions) must be current-year documentation. Photographs are not accepted.

Certain states are community property states: AZ, CA, ID, LA, NV, NM, TX, WA, WI. If residing in a community property state and filing Married Filing Separate or Joint, the IRS may require both spouses' income and expenses. If a spouse refuses to cooperate, or if separation is occurring, resolution may proceed only through the mirroring process.

The mirroring process may take up to 90 days and cannot be undone. Once complete, each spouse must maintain a separate payment plan. Voluntary payments may be made during this period.

For MFJ balances, a signed Form 2848 is required for each spouse who was the primary taxpayer on any balance-due year. If spouses are filing MFS and sharing the resolution, separate 2848s are required and accounts will be cross-referenced. If spouses are not sharing the resolution or are separating/divorcing, MFJ balances must be mirrored.

To establish a payment plan, all required tax returns for the most recent six years must be filed. Noncompliance will prevent resolution setup.

Down payment amounts may change based on processing time. If more than 15 business days are needed to submit a down payment, it is recommended to increase the payment by 1% for every additional 5 business days. Example: A 10-day delay may require a 2% increase.

Waiting for balances to expire carries inherent risk. Until a resolution is established, enforced collection actions such as liens, levies, or garnishments may occur.

If IRS balances are assigned to a third-party collection agency, a signed and dated withdrawal letter is required to return the account to the IRS before resolution work can proceed.

• Form 2848 (Power of Attorney): Required to establish a resolution.
• Form 433-D (Direct Debit): Required for direct debit installment agreements. The form must be completed, initialed, signed, and dated.

• Installment Agreements must fall within 5% of estimated payment ranges, unless the user selected a payment-plan-only option.
• IRS user fees currently range from $107 (direct debit) to $178 (manual) and may be waived for low-income taxpayers.
• If the monthly payment is less than the user fee, the full fee must be paid as the first payment.
• Balances over $50,000 require IRS manager approval and may result in federal tax liens.
• Balances over $250,000 require full financial disclosure and may require use of all disposable income unless reduced by a qualifying down payment.

• 180-Day Extension: Granted once per taxpayer if no prior extension or defaulted installment agreement exists.
• Step Installment Agreements: Payment amounts may increase in future years. Taxpayers must contact the IRS if future payments become unaffordable.

If an AUR exam is open:

• The IRS may issue a CP2000.
• Failure to respond may result in a Notice of Deficiency.
• Resolution options may exclude the exam year until finalized.
• Additional assessed tax must be paid in full to prevent default, or the case may be placed on hold pending determination.

• To avoid federal tax liens, balances may need to be reduced below IRS thresholds.
• To remove liens under certain thresholds, direct debit payments and Form 12277 may be required.
• Payment plans must be paid between the 1st and 28th of each month.
• Accepted payment methods include direct debit, mailed checks, and online payments.

Voluntary payments are encouraged whenever possible to reduce penalties and interest. If account monitoring is in place, all IRS or third-party notices must be forwarded immediately, as notices may precede account updates.