Do you deserve a break from the unrelenting pressure of the IRS? You just might be entitled to one! Currently Non-Collectible is a status assigned to taxpayers whom the government has deemed unable to pay their outstanding tax liabilities. When an account is designated Currently Non-Collectible, it temporarily pauses the IRS collection process—meaning no harassing letters, intimidating phone calls, or threatening levies.
Am I Eligible for Currently Non-Collectible Status?
The definition and qualification for IRS “Currently Non-Collectible” is found in Part 5, Chapter 16, Section 1 of the Internal Revenue Manual. It states that for a taxpayer to qualify for IRS Currently Non-Collectible, they must demonstrate a financial hardship which, after paying for the cost of living expenses, leaves little to no room to pay off an outstanding tax debt. The taxpayer must demonstrate a severe economic disadvantage, and not just a mild inconvenience.
To calculate this, an IRS officer will evaluate the individual’s “total positive income”. Total positive income includes any positive value shown in the income section on a tax return, such as:
- Schedule C income (self-employment profits)
- Schedule F income (farming business ventures)
- Real estate income
- Other sources of income or investments
The IRS will tally up your income and compare it against both national and local standard living expenses, which are broken up into four categories. The standards the IRS allows you to deduct from your total positive income without question include:
- National Standards—Food, Clothing, and Miscellaneous
Monthly living expenses such as food, housekeeping supplies, apparel and services, personal products and services, and miscellaneous expenses are considered standard deductions.
- National Standards—Out-of-Pocket Healthcare Expenses
Standard deductions have been established for out-of-pocket health care expenses including medical services, prescription drugs, and medical supplies such as eye glasses.
- Local Standards—Housing and Utilities
Standards such as mortgages/rent, property taxes, gas, heating, garbage collection and so forth are based by county and derived from the U.S. Census Bureau, American Community Survey and BLS data. Find the deductible amount for your county here.
- Local Standards—Transportation
Transportation deductions are calculated based on nationwide figures for monthly loan or lease payments—referred to as “ownership costs”—and additional amounts for monthly operating costs broken down by Census Region and Metropolitan Statistical Area.
The IRS will combine your standard expenses and deduct them from your total positive income to determine your net disposable income, which could theoretically be spent on tax payments; if paying off a tax debt after your basic cost of living would create an unfair economic disadvantage, the IRS might consider your account currently non-collectible.
What Happens Under IRS Currently Non-Collectible?
Placing a taxpayer under IRS Currently Non-Collectible status will stop a tax levy and temporarily suspend all collection and enforcement activity. Once they agree that you’re unable to pay off your balance due to financial hardship and put your account into Currently Non-Collectible, they are required to essentially leave you alone—with the exception of an annual bill notice—and can no longer make continuous collection attempts. This means:
- Lifted liens and levies
- No more wage garnishment
- Suspended collection actions
- Cessation of calls and letters
- No further credit reporting
- Deferred debt payments
Keep in mind though, once your account acquires Currently Non-Collectible status, your debt is not simply wiped away; you will still be expected to pay off your tax debt once your situation improves. Although the IRS considers you Currently Non-Collectible given your current situation, they will later reevaluate your standing and capability to pay your tax liabilities. Also, even though you save money through deferred payments and lifted garnishments, you’ll ultimately be paying more in the end, because interest and penalties will continue to accrue on whatever outstanding balance is due.
You’re still required to file income tax returns, and any tax refunds owed while the account is in Currently Non-Collectible will be automatically offset and applied to the outstanding debt until it’s been settled. It’s therefore important to talk to a tax professional and learn all of your back tax relief options, such as an offer in compromise, which could be more advantageous depending on your situation.
How Long is My Account Non-Collectible?
Currently Non-Collectible status isn’t intended for a permanent solution, but only temporary relief. The amount of time an account stays protected under a Currently Non-Collectible status varies on a case by case situation. When the IRS officer determines the account as uncollectible, they’ll enter a closing code which will eventually pull your case for re-review. Which code they use, and when it triggers a review process, depends on your net disposable income and the circumstances of your financial hardship.
Generally, the IRS has up to ten years to attempt to collect on taxes, after which point the statute of limitations are enforced. Our financially based Currently Non-Collectibles do not extend this statute of limitations.
How Can I Apply for IRS Non-Collectible Status?
To be considered for Currently Non-Collectible status, you’ll need to provide the IRS with a thorough financial report which will determine the fate of your case. Before applying, be sure all tax returns for previous years have been filed—even if you can’t pay them now—to place your account in good standing with the IRS. The documents you’ll need to gather for your Currently Non-Collectible application include:
- All income and living expenses
- All assets and their market value
- Bank statements from the last three months
- Proof of any out-of-pocket medical expenses
These documents will help you fill out Form 433-A or 433-B, a financial information statement required by the IRS. Form 433-A or 433-B provides the government with a roadmap to your finances they’ll use to determine your eligibility for Currently Non-Collectible status. You’ll need to fill out detailed information, and be prepared to:
- Make a list of all tangible and intangible assets you have (real estate, cars, stocks, etc.)
- Determine a market value for all assets
- Track how much income was made in the last three months
- Track how much was spent in the past three months
- Report and average your three-month income versus expense analysis, broken down by category
Applying for IRS non-collectible status can be a daunting task, and professional help ensures your greatest chance at achieving Currently Non-Collectible for your account. Steburg Law Firm’s team of professional tax attorneys can plead your case before the IRS and help you reach the best solution possible. Allow our qualified professionals to help with the IRS and guide you through a process which can otherwise be an overwhelming ordeal. Contact us today to see how we can help resolve your case and learn how feasible financial freedom can be.