Have you recently experienced financial setbacks and are now finding it impossible to meet your tax obligations to Uncle Sam? If so, applying for non-collectible status may be right for you.
Beware. During the process of granting you non-collectible status, the IRS labels your status as “Currently Non-Collectible.” In other words, the tax relief might be only temporary. To avoid allowing the 10-year window for tax collections to close on your account, Uncle Sam will revisit your financial situation whenever he likes. When your fiscal condition improves enough (such as receiving an inheritance), you will be removed from non-collectible status, and your tax liability will be reinstated, complete with accrued interest.
Receiving a non-collectible status means that the IRS doesn’t believe it can collect delinquent tax payments from you because of adverse monetary circumstances. To establish your status, the IRS looks at your financial standings to figure out whether it’s worth the time and costs of pursuing collection activity against you. If you have few assets to levy or lien, income insufficient to cover basic living expenses, and no immediate prospects for increasing your income, the IRS may declare your status as non-collectible.
This avenue to escaping your tax debt sounds like easy navigation. But as with most IRS issues, the avenue is not bump-free.
First, there is an IRS Form, a long, complex form. Your goal for completing the form is to prove that you own few to no assets and have no disposable income – your income doesn’t exceed the expenses for everyday living necessities, the standard costs of which are set by Uncle Sam. Full disclosure of your assets, expenses, and income is necessary, and you must provide certain documentation to verify the figures you report.
The IRS then “audits” the form for errors, including inaccurately reported assets and liabilities.
If the IRS concludes that the form is incorrect, the IRS will reject your application. Even unintentional mistakes, such as simple math miscalculations, can lead to a denial of the request. The IRS may then begin pressuring you to begin liquidation of any assets you hold. In extreme situations, the IRS may decide that you are attempting to commit fraud by falsely reporting your financials.
If the IRS approves your request, then the IRS ceases active collection actions against you – at least temporarily.
Because of the complications associated with non-collectible status, we encourage you to consider that solution only after exhausting all other possible means of resolving your tax debt. But if you do decide that this is the right avenue for you to travel, call our team of professionals at Law Offices of Christy Lee, P.C., to help safeguard your best interests.