An Offer in Compromise Alternative
The IRS offers many different options to pay back your tax liabilities. However, what happens when you are facing a financial hardship and do not have an ability to make a monthly payment? In situations where the IRS determines that a taxpayer is not collectible, they may place the account into a currently non-collectible status. It is a federal tax relief program that you may not be aware of.
While in uncollectible status 53, as it is called, the IRS will not attempt to collect against the taxpayer. Aside from an annual reminder letter, the IRS will not send out notices or attempt to contact the taxpayer to collect the tax debt. The IRS may designate an account as being in uncollectible status for the short or long term. All tax debt cases are unique—the facts and circumstances dictate the outcome.
Austin & Larson Tax Resolution, in Howell, MI, Jackson, MI, and Saginaw, MI, can help you on the road to tax debt relief in determining your eligibility and communicating with the IRS regarding all aspects of “non-collectible status”. Call us now at 1-866-668-2953 for immediate tax debt settlement help that you can trust.
How to Request Non-Collectible Status
Currently, non-collectible status can be requested through IRS Automated Collection System (ACS), an IRS Revenue Agent, an IRS Appeals Agent, or any other IRS agent authorized to establish resolution on a taxpayer’s liability.
In order to request a non-collectible status, you have to show the IRS that you are not collectible and do not have an ability to make a monthly payment towards your tax liabilities. Depending on the department that you are requesting a non-collectible status through, you will either need to complete IRS form 433-f or 433-A. These forms request information regarding your monthly income, monthly expenses, and your current assets. Austin & Larson Tax Resolution can help guide you, as well as, complete these IRS forms on your behalf to make sure that are done correctly. We have helped many Michigan taxpayers with tax debt gain peace of mind by offering this service.
The IRS will review your monthly collectability along with any equity you have in your assets to determine your ability to make a monthly payment, or to liquidate an asset to pay your outstanding tax debt. If, after reviewing your information, the IRS finds that a monthly payment would cause a financial hardship, they may place the account into a currently non-collectible status.
There are several things to know regarding how the IRS determines if a payment will cause a hardship if the taxpayer does not have an ability to pay. First, the IRS has their own financial standards that they allow for monthly expenses. Just because a taxpayer has a monthly expense that they pay does not mean that the IRS is going to allow it when determining whether they can afford to make a monthly payment. One example of this is credit card debt. Although a taxpayer may be making a few hundred dollars in credit card payments a month, the IRS will not count this as an allowable expense. For other expenses, the IRS will only allow up to a certain amount per month. If the taxpayer spends more than the allowable amount per month, the excess will also not be allowed as a monthly expense.
How Long Can You Remain in a Non-Collectible Status
The IRS will allow a taxpayer to stay in a non-collectible status so long as they are not collectible by IRS standards. However, this does not mean that once a taxpayer is found to be non-collectible by the IRS that they no longer have to worry about their tax liability.
The IRS can review a taxpayer’s ability to pay at any time. They can also remove the non-collectible status and place the account back in to active collections. Any new tax assessments will terminate the non-collectible status. Failing to timely file a tax return will also cause the IRS to remove the non-collectible status.
Pros and Cons of Non-Collectible Status
Currently, non-collectible status provides a temporary tax reprieve to taxpayers when a monthly payment would cause them a financial hardship. Taxpayers who have come upon tough financial times can use this status to get their finances back on track. While you are in a non-collectible status, the collection statute will continue to run against your liabilities.
However, there are also many negatives that come with a non-collectible status. First, while you are considered not collectible, interest and penalties will continue to accrue against your tax liabilities. Also, although the collection statute continues to run, if you are later found to be collectible, you may end up with a higher monthly payment in order to pay your debt within the remaining statute.
Also, the IRS will file a tax lien on your outstanding tax balances when your account is placed into currently non-collectible status. This will have a negative effect on your credit score and may prevent you from obtaining financing.
Another downside to a non-collectible status is that it is not permanent resolution. You will have to continually update your financial information with the IRS. You will also continue to have your tax debt on your account. The IRS will keep any refunds and apply them to your tax liabilities.
Currently Non-Collectible Status and Offers in Compromise
A currently non-collectible status can also be used to help determine your eligibility for an Offer in Compromise. Generally, a taxpayer that is determined to not be collectible by the IRS may also qualify for an Offer in Compromise. While there are other factors that come in to play with Offer in Compromise eligibility, having an inability to pay your back taxes due to financial hardship is one of the main factors for an Offer in Compromise.
If you have a temporary financial hardship and are unable to pay your back taxes to the IRS, a currently non-collectible status can give you the fresh start that you need to get your finances back in order without having to make a monthly payment. While this is not a permanent tax relief solution of your IRS liabilities, it can give you the time you need to be able to resolve your taxes permanently.
IRS Letters That You May Have Received – 4223 and 4624c
You may have received one of two letters from the IRS if you obtain non-collectible status through the efforts described here. Letter 4223 or 4624c will be issued to the taxpayer when a case is closed as uncollectible. The letter states the type of tax and the periods that are temporarily closed due to hardship. Also, the letter states that the government may reopen the case in the future if the taxpayer’s financial condition improves. However, interest and penalties will continue to accrue, as previously noted.
One of the most common reasons Michigan businesses and individual taxpayers retain the services of Austin & Larson Tax Resolution is our proven ability to guide tax debt clients through one of the most stressful experiences there is – an IRS collection matter. Call us now at 1-866-668-2953, to start the process of successful tax debt relief now with true IRS problem-solvers.