You will find the definition spelled out in IRS IRM – 5.16.1.2.9 (04-29-2011)

IRS Hardship

The IRS  procedures in IRM 5.15.1, Financial Analysis Handbook, are used to determine the correct resolution of the case based on the taxpayer’s assets and equity, income and expenses. IRS only looks at Income and Assets to make their determination.

A Internal Revenue Service hardship exists if a taxpayer(s) is unable to pay reasonable basic living expenses

Disclaimer: IRS Collection Financial Standards are intended for use in calculating repayment of delinquent taxes. These Standards are effective on March 1, 2011 for purposes of federal tax administration only. Expense information for use in bankruptcy calculations can be found on the website for the U.S. Trustee Program.

National Standards have been established for five necessary expenses: food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous.

The standards are derived from the Bureau of Labor Statistics (BLS) Consumer Expenditure Survey (CES) and defined as follows:

The basis for a hardship determination is from information about the taxpayer’s financial condition provided on Form 433–A, Collection Information Statement for Wage Earners and Self-Employed Individuals or Form 433–B, Collection Information Statement for Businesses.

Generally, these cases involve no income or assets, no equity in assets or insufficient income to make any payment without causing hardship.

An account should not be reported as CNC if the taxpayer has income or equity in assets, and enforced collection of the income or assets would not cause hardship.

Hardship accounts are closed using cc 24 through 32. See Exhibit 5.16.1-2.

Reminder:

Hardship closing codes can only be used for individual or joint IMF assessments, sole proprietorships, general partnerships, and LLCs, where an individual owner is identified as the liable taxpayer. See IRM 5.16.1.2.4 for decedent cases.

Verification of a CIS is not required if the aggregate unpaid balance of assessments is less than ? ? ? ? ? and the information on the CIS appears reasonable.

Under certain conditions, a CIS is not required before reporting an account CNC. The aggregate unpaid balance of assessments, including any prior CNC’s, must be less than ? ? ? ? ? ? ? ? and at least one of the following conditions must exist:

The taxpayer has a terminal illness or excessive medical bills.

The taxpayer is incarcerated.

The taxpayer’s only source of income is social security, welfare, or unemployment.

The taxpayer is unemployed with no source of income. Consider a mandatory follow-up or Manually Monitored Installment Agreement (MMIA) for seasonal workers.

Note:

Employees are required to secure documentation from the taxpayer prior to declaring the account uncollectible if internal documents such as IRPTR and RTVUE do not confirm the taxpayers’ circumstance.

The following verification is required for accounts when the aggregate unpaid balance of assessments is between ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? :

IRPTR or SUPOL

RTVUE/TRDBV

Note:

RTVUE/TRDBV is required only if the last filed return was for one of the immediate two preceding years. If RTVUE reveals new income or asset information secure a copy of the return(s) for the purpose of identifying income or assets.

For accounts where the aggregate unpaid balance of assessments is above ? ? ? ? ? the following additional verification is required:

Full credit report on IMF and sole proprietor taxpayers and LLCs (where an individual owner is identified as the liable taxpayer)

Motor vehicle records

Real and personal property courthouse records, see IRM 5.1.18.4, Real Property Records

On-line locator services, such as Accurint, follow security guidelines when using public internet search engines

CC AMDIS. If there is open Examination activity, contact the revenue agent to determine any additional sources of collection or the need to limit the scope of the examination based upon collectibility.

Audit File or Special Agents Report if the assessment originated in Examination or Criminal Investigation (CI). The file can be secured by requesting the DLN of the TC 29X/30X.

Note:

If unable to obtain any information from the special agent, consider consulting with Advisory. If there is a TC 910 on the module, the taxpayer may have filed a financial statement with the probation office.

Note:

Credit reports are optional for accounts with an aggregate balance below ? ? ? ? ? ? .

IMF accounts and BMF accounts of sole proprietorships, partnership and LLCs, (where an individual owner is identified as the liable taxpayer) that cannot be collected due to bankruptcy, will be closed using hardship closing codes.

IRC 6343(e) requires the immediate release of a levy on salary or wages due a taxpayer upon agreement with the taxpayer that the tax is not collectible. See IRM 5.11.2, Serving Levies, Releasing Levies and Returning Property. Case histories must be reviewed to ensure that wage levies are released prior to declaring an account uncollectible under hardship closing codes. The case history must be documented.
Reminder:

If TC 670 with designated payment code (DPC) 05 (levy) is present on any module or a regular series of payments is noted, ensure that the disposition of the levy is known.

A compliance check will be made and the results documented in the case history for all hardship determinations per IRM 5.16.1.1(5). All open filing requirements or Del Ret modules must generally be resolved and closed appropriately when reporting an account CNC.

Open Del Ret modules may be resolved by closing as little or no tax due, or income below filing requirement (P-5-133), if warranted by the facts of the case. See IRM 5.1.11, Delinquent Return Accounts, for options to resolve delinquent return accounts. If the taxpayer is required to file and refuses a referral or summons may be appropriate. See IRC IRM 25.5, Summons Handbook for summons procedures.