February 19, 2016

50768926_sThe IRS classifies taxpayers into various categories based on factors present in the individual’s circumstances, also referred to by the IRS as a “status”. A currently not collectible status, also commonly known as a hardship status or status 53, is used to describe a taxpayer who cannot afford to pay an outstanding tax liability. It occurs when the IRS agrees that you are unable to repay your debt, and that paying this debt would create an economic hardship on you. As a result of this status, the IRS stops all collection efforts, garnishments, and levies.

In order to obtain a currently not collectible status, you must provide the IRS with financial information on your household income and monthly living expenses on Form 433-A. You must also be able to provide supporting documentation of your income and necessary living expenses in the last three months, such as utility bills, credit card statements and mortgage statements. If the IRS agrees that you have no money remaining to pay them after paying off your expenses, then your account will be marked as uncollectible.

Your expenses need to be reasonable for the IRS to consider you to be in hardship, examples of which are rent, medical expenses, child support, gas and car payments. The IRS will also consider you in hardship if seizing your assets would either create a hardship or not result in any money paid, such as if there were no equity in your property.

When determining the collectability of a tax liability, the IRS will take into consideration several factors. These include your present financial condition, your income history and your future earnings potential, whether or not you are involved in a bankruptcy proceeding, and the probability that your assets or equity will increase in the future.

It is important to remember that a currently not collectible status is only a temporary measure designed to allow you time to get your financial affairs in order. Although any action taken against you by the IRS is suspended, your outstanding tax debt is not forgiven. The IRS will continue to monitor your financial situation and may still opt to file a tax lien on your assets in the future. Late payment penalties and interest on your debt also generally continue to accrue.

A currently not collectible status is difficult to acquire and will significantly impact your financial well being and credit record. If you are considering applying for a currently not collectible status, it would be best to consult with a tax professional to ensure that this option is best for your situation.

Categories: Blog, IRS, Mailed Tax Notices