When you can’t afford to make any payments to the IRS, you can request to be listed as currently not collectible. This is available to those who don’t have ANY assets to sell and their income matches their ALLOWED expenses. Being listed as currently not collectible is often a better move than requesting an Offer in Compromise.
If the IRS agrees that you can’t afford to pay any of your tax debt, they’ll put collections on hold and list you as currently not collectible. The reasons these requests are approved include:
– Collection would cause an undue hardship on you, leaving you unable to meet necessary living expenses.
– A corporation may apply to be currently not collectible and remain in business if it is unable to pay back taxes. It must get current with all payroll and income taxes before this will be approved.
– If the IRS is unable to locate you and your assets, they’ll list your account as currently not collectible. They will usually search again in a year or two. If any information comes in to the computer, such as a bank interest statement or 1099 with your social security number on it, they have you.
– If the IRS us unable to contact you, they may list the account as currently not collectible. This happens in smaller cases, where they don’t bother to assign a Revenue Officer.
– The taxpayer dies and has no significant estate for the IRS to attack.
– While you are in bankruptcy.
– If a corporation goes out of business and has no remaining assets. This assumes that no payroll taxes are due and thus no civil penalties are levied against the principals of the business.
– If the balance due is minimal, and attempting to collect is inefficient, the account will be listed as currently not collectible.
If you owe the IRS more than $5,000, and currently not collectible status is granted, they’ll file a tax lien. Also, interest and penalties continue to accrue until the debt is paid in full or the collection statute expires.
To be clear, becoming currently not collectible doesn’t eliminate the tax debt. You still owe until the 10 year statute runs. It simply suspends collection activity for a time.
In order to get your account listed as currently not collectible, you will need to complete Form 433-A and/or B and give over supporting documentation to prove that you are unable to pay. Basically, this is the same as requesting an installment agreement for $0. Please see my various articles on the IRS installment agreement for more details.
Once you have been approved, the IRS will review your finances every 2 years. Therefore, you must keep up with your tax return filings and update your address whenever you move. Once you go through the effort to be listed as currently not collectible, you don’t want to mess it up by failing to respond to a request for a new financial statement.
I’ll conclude with the opinion that being listed as currently not collectible is often a better solution than an Offer in Compromise or bankruptcy. Filing an OIC or BK puts the collection statute on hold, which gives the IRS additional time to come after you. In contrast, the statute is running while you are listed as uncollectible. If you have only a few years left, and can qualify, you should use currently not collectible status to run out the clock on the IRS.