What Is Currently Not Collectible Status? How to Stop IRS Enforcement
Updated: Jul 26, 2019
Many taxpayers delay filing tax returns and making tax payments because they cannot make a full payment when their tax return is due. This leads to penalties and interest, but often the taxpayer will put off filing the return until they can come up with the money to pay the debt. Unfortunately, this may not happen before the IRS sends them a delinquent notice demanding payment and threatening enforcement actions including liens and levies. Taxpayers in this situation have options to avoid further financial disruptions to their lives, but they must take action.
One option to consider is requesting Currently Not Collectible account status. Once the IRS grants Currently Not Collectible status, it ceases most collection activities including enforcing levies and wage garnishments. This option is generally available to individuals and businesses that are facing hardship. Taxpayers qualify for hardship status when they cannot pay both any amount of tax and their basic living expenses. If a taxpayer must reduce basic living expenses (according to the IRS standards and rules) to pay tax liabilities, the IRS permits these taxpayers to defer making payments until their financial situation improves. The IRS will also review any equity value that a taxpayer has in any type of property including real estate and cars to determine if property may be sold to satisfy debts. Currently Not Collectible status may provide relief from enforcement action but there are important considerations that require careful analysis To determine if Currently Not Collectible status is the best option.
First, Currently Not Collectible status may only serve as a temporary solution. While enforcement action is put on hold, the tax debts are not eliminated or reduced as part of this problem. Penalties and interest continue to accrue. This may be necessary for some taxpayers, however, and may be combined with other tax resolution methods to strategically reduce or eliminate tax debts. Currently Not Collectible status may also be the best strategy when a taxpayer expects to be under financial hardship for the current year and possibly future years, even if prior year debts are eliminated. Taxpayers should weigh this possibility when considering an offer in compromise as an alternative, because an offer in compromise requires taxpayers to remain compliant with tax filings and current with future tax payments for five years after an offer in compromise is accepted.
Currently Not Collectible status also requires a taxpayer to file returns for open or delinquent tax years. Once processed the IRS can consider a Currently Not Collectible request. If the IRS accepts the Currently Not Collectible request for the uncollectible accounts, enforcement action will stop and the IRS will review the taxpayers account annually by analyzing the taxpayers current year tax return information. If the financial information appears to support an ability to pay the tax debts, the IRS will review the account and possibly reopen enforcement actions to collect the debt. If the taxpayer‘s return information appears to be unchanged, the IRS will extend the Currently Not Collectible status until the hardship ends. This review is supposed to occur annually.
It is is possible for the Currently Not Collectible status to extend through the IRS’s self imposed collection deadline, which is generally ten years from the assessment of the taxes. The IRS generally will take heightened enforcement actions and review a Currently Not Collectible status account prior to the collection deadline and a taxpayer in Currently Not Collectible status can expect at least one full review prior to the collection deadline expiring.
Other issues may may apply depending on a taxpayers circumstances, including whether the IRS will record a federal tax lien that attaches to a taxpayers property. This lien will continue during Currently Not Collectible status and may impact a taxpayers’s ability to obtain credit.
If you are having serious difficulty paying your living expenses and are facing existing or possible IRS enforcement action, call Steiger Tax Law at (248) 259-6367 for a free consultation to see if Currently Not Collectible account status may solve your tax problems.