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Department of Taxation and Finance

Offer in Compromise: undue economic hardship provision

Generally, undue economic hardship occurs when a taxpayer is unable to pay reasonable basic living expenses.  Basic living expenses are those that provide for the health, welfare, and production of income for the taxpayer or the taxpayer's family.  We will look to the Internal Revenue Service Collection Financial Standards to help determine a taxpayer's allowable basic living expenses. 

In addition to basic living expenses, we will consider other factors that can impact an individual's financial condition, including: 

  • taxpayer's age, employment status, and employment history
  • inability to earn an income because of a long-term illness, medical condition or disability
  • obligations to dependents
  • extraordinary circumstances such as special educational expenses, medical catastrophe or a natural disaster
  • inability to borrow against or liquidate assets due to hardship

Undue economic hardship does not include the inability to maintain an affluent or luxurious lifestyle.  Other expenses that we generally won't allow as necessary living expenses in determining the existence of an undue economic hardship include:

  • private school tuition
  • college expenses
  • charitable contributions
  • voluntary retirement contributions
  • payments on credit cards