Form 1127: Application for Extension of Time for Payment of Tax Due to Undue Hardship

Form 1127– "Application for Extension of Time for Payment of Tax Due to Undue Hardship," is a document submitted to the Internal Revenue Service (IRS) to request a delay in paying your federal taxes. It allows taxpayers experiencing financial difficulties to postpone their tax payment without incurring penalties or interest charges.

What's the Purpose of Form 1127?

The primary purpose of Form 1127 is to request an extension of time from the IRS to pay your tax liability. Filing this form does not eliminate your tax debt, but it can help you avoid penalties and interest charges that would typically accrue on unpaid taxes.

What Can You Request an Extension For?

Form 1127 can be used to request an extension for the following tax liabilities:

  1. The tax shown or required to be shown on your tax return (e.g., income tax).
  2. An amount determined as a deficiency after an IRS examination of your return.
  3. Taxes on qualified investment entities.
  4. Taxes on greenmail.
  5. Taxes on structured settlement factoring transactions.
  6. Gift taxes.

Who Should Use Form 1127?

This form is ideal for taxpayers in situations where paying their taxes on time would cause significant financial hardship. Here are some common scenarios:

Unexpected medical bills: High medical expenses not covered by insurance can create a temporary cash flow shortage.

Casualty, disaster, or theft: If you experience a major event like a fire, flood, or robbery that impacts your finances, Form 1127 can provide relief.

Business downturn: Business owners experiencing a temporary financial setback might use the form to avoid jeopardizing their business operations.

Substantial investment losses: A significant drop in the value of investments can create a temporary cash flow issue.

Note: It's important to note that "undue hardship" is a legal term with a specific meaning. Simply being short on cash on the due date typically isn't enough.

What taxes does Form 1127 apply to?

This form can be used to request an extension for various federal taxes, including income tax, self-employment tax, and alternative minimum tax (AMT).

What is the deadline to file Form 1127?

The deadline to file Form 1127 is the same as the original due date for your tax payment, including any extensions you may have received for filing your tax return (using Forms 4868 for individuals or 7004 for businesses).

What happens after I file Form 1127?

The IRS will process your application and review the supporting documents. They will notify you of their decision by mail. Approval grants you an extension and outlines the new payment deadline. If your request is denied, the IRS will explain the reasons and advise you of your next steps.

Does filing Form 1127 automatically grant me an extension?

No. The IRS will review your application based on the information you provide regarding your financial hardship. They have the discretion to approve or deny your request.

When should I file Form 1127?

For the extension to be considered, Form 1127 must be submitted to the IRS on or before the original due date of your tax return (including any extensions already granted) or the due date for payment indicated in the tax bill you received.

What information do I need to include with Form 1127?

  • A detailed explanation of the hardship you would face if forced to pay your taxes on time.
  • A statement of your assets and liabilities, including their current market values.
  • An itemized list of your income and expenses for the three months preceding the tax due date.
  • Any additional documentation that supports your claim of undue hardship.

What happens if my Form 1127 is denied?

If your request for an extension is denied, the IRS will notify you and explain the reason for the denial. You will then be responsible for paying your tax liability immediately, along with any accumulated penalties and interest.