Hardship distributions are subject to income tax (unless they consist of Roth contributions). They may also be subject to an additional 10% tax in advance. The IRS will keep any refunds, including interest, that may be due in connection with tax returns filed until the date the IRS accepts the offer. The letter will explain why the IRS rejected the offer and will provide detailed instructions on how the taxpayer can appeal the decision to the IRS Independent Office of Appeals.
Applicants must submit the form to the IRS within 30 days of the date of their letter of acceptance of the installment agreement to ask the IRS to reconsider their situation. When the IRS terminates an OIC, the agreement is no longer in effect and the IRS can then collect the amounts originally due (minus payments made), plus interest and penalties. A plan may apply, but is not required to do so, the same conditions to hardship distributions of the employer's periodic and non-elective matching contributions as to hardship distributions from elective deferrals.
