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Currently Not Collectible Status: An Option for IRS Tax Relief

| Mar 19, 2012 | Firm News

Taxpayers that owe the IRS back taxes are often in a difficult financial position. The IRS offers a number of tax relief options to taxpayers. One option available to those that can demonstrate a financial hardship is Currently Not Collectible status. If the IRS deems a taxpayer uncollectible due to a financial hardship, the IRS can place the taxpayer in Currently Not Collectible status. This allows a taxpayer who is unable to pay their tax debt a chance to get back on their feet financially. It stops IRS collections. Taxpayers are relieved from the threat of wage garnishments and bank levies and the IRS will not require the taxpayer to make any payments toward their tax debt during this time. Moreover, the statute of limitations continues to run. The IRS typically, has only ten years form the time a tax is assessed to collect a tax debt. The IRS can no longer collect once the statute of limitations expires, which is also known as the collection statute expiration date.

Currently Not Collectible status is designed as a temporary form of relief. Currently Not Collectible status itself does not relieve a taxpayer from their IRS tax debt. The IRS will periodically review a taxpayer’s account. If a taxpayer regains their ability to pay on their tax debt, the IRS may require them to begin making monthly payments via an installment agreement. The IRS often files Notices of Federal Tax Lien when Currently Not Collectible status is approved if they have not already done so. Interest and penalties continue to accrue as well. But, when faced with a financial hardship it is a fair trade-off to be relieved of payments to the IRS in order to meet basic living expenses and to be free of worrying about wage garnishments and bank levies.

To establish a financial hardship with the IRS for the purposes of Currently Not Collectible status, the taxpayer must prove that all of the taxpayer’s income is required to pay allowable expenses and there is no accessible equity in assets that can be used to pay down tax debt. This is done by preparing and submitting collection information statement containing all of a taxpayer’s financial information along with supporting documents such as income statements, bank statements, and proof of expense