One of the programs that the IRS offers to resolve unpaid tax liabilities is the Currently Not Collectible Status. A taxpayer who has delinquent tax liabilities but who has a demonstrated inability to pay toward the tax based on their income, expenses, and assets may be a good candidate for the Currently Not Collectible Status.
When the IRS places a tax account into Currently Not Collectible Status, they will cease using the collections tools at their disposal, such as wage garnishments and bank levies, to secure the debt and will also not be demanding monthly payments from the taxpayer.
If a taxpayer finds themselves in a position where they have unpaid tax liabilities but cannot afford to pay the debt either because of a reduction in their income or due to the magnitude of their reasonable living expenses, they may submit information to the IRS regarding their income, expenses and assets to qualify them for a Currently Not Collectible Status.
If the IRS determines that, based on their current income, expenses, and assets, it would create a hardship to the taxpayer to collect on the debt then they will place the liability into a Currently Not Collectible Status.
One consequence however of a tax liability being placed into a Currently Not Collectible Status, is that on liabilities exceeding $10,000, the IRS will file a Federal Tax Lien to secure the debt. Additionally, the Currently Not Collectible Status may not necessarily last for the entire period of time the IRS has to collect on the debt. The IRS frequently tags accounts closed as Currently Not Collectible with a future review, typically every 2 years, in which the IRS will request updated financial information to determine if the taxpayer’s ability to pay toward the debt has changed. Future reviews may also be triggered if the income levels reported to the IRS by employers and other payors through W2 and 1099 significantly exceed the amount of income the taxpayer had at the time the Currently Not Collectible Status was approved.
A Currently Not Collectible Status may be the right resolution option for a taxpayer experiencing a temporary financial hardship, such as a reduction in their income or an increase in their living expenses. In these circumstances, the Currently Not Collectible Status gives the taxpayer time to deal with their current financial condition without the threat of adverse action from the IRS.
Another situation in which a Currently Not Collectible Status would be advantageous to a taxpayer is where they are on a fixed income which places them in a financial hardship but have equity in assets, such as a primary residence or retirement account, that would allow the taxpayer to pay the debt if liquidated and thereby disqualify them from an Offer In Compromise. Under those circumstances, a taxpayer may potentially be able to remain in a Currently Not Collectible Status long enough that the IRS is no longer able to collect on the debt as a matter of statute.
Over the years, our tax firm has found that when working with our experienced tax attorneys over 68% of all the people who owe Federal or State taxes, their tax debt can be negotiated into a Currently Not Collectible Hardship Status.
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