When you can not afford to pay the IRS, you may request to be listed as IRS currently not collectible. It is available for those who do not have any assets to sell and their profit matches their eligible expenses. Being listed as IRS currently not collectible is better than requesting an Offer in compromise.
If the IRS agrees that you can not afford to pay any of your tax debt, they will put collections on hold, and list you as currently not collectible. The reasons these requests are approved are:
– The collection will impose an undue hardship on you, leaving you unable to cover the costs necessary living expenses.
– A corporation may apply for currently not collectible and stay in business if it is unable to pay back taxes. It must be updated with all payroll tax and income before it is approved.
– If the IRS cannot locate you and your assets, your account will be listed as currently not collectible. Normally, they will check back for a year or two. If any information comes to the computer, such as a bank interest statement or 1099 with your social security number on it, they have you.
– If the IRS cannot contact you, they can list your account as currently not collectible. This happens in a small case where they do not bother to assign officers to the case.
– The taxpayer dies and has no significant assets that the IRS will attack.
– While in bankruptcy.
– If the company goes out of business and has no remaining assets. This implies that no taxes on wages are paid and therefore no civil sanctions imposed against company directors.
– If the balance due is minimal, and attempt for collection is inefficient, the account is listed as currently not collectible.
If you owe the IRS over $ 5,000, and currently not collectible status is granted, they will file a tax lien. In addition, interest and penalties continue to accrue until the debt is paid in full or collection status expires.
To be clear, becoming IRS currently not collectible does not remove the tax debt. You still owe until your collection status expires in 10 years. It simply suspends collection activities for some time.
In other to get your account listed as currently not collectible account, you must complete Form 433-A and/or B and submit other supporting documentation to prove that you can not pay tax. Basically, it is the same as requesting an installment agreement of $0.
Once approved, the IRS will review your finances every two years. So you have to keep up to your tax return filings and update your address every time you move to a new one. Once you are listed, you do not want to ruin it by not responding to a request for a new financial statement.