There are instances when the IRS will delay the collection of your tax liability. One of those instances is when you’ve been assigned a ‘currently not collectible’ status. A taxpayer is assigned this status when they’re financially unable to make payments on their tax liability. It might not sound like an enviable position, but there are ways to take advantage of a currently not collectible status to minimize or even eliminate your tax liability. If you think not collectible status might be an option for you, consult with Sacramento tax lawyer Jin Kim regarding this tax resolution strategy by calling her office at (916) 299-9913.
What Not Collectible Status Means
When a taxpayer has been assigned this status, it means that the taxpayer cannot make payments on their tax liability for a recognized reason. One possible reason is that the taxpayer only makes enough to cover their living expenses. Another good reason for claiming this status is when a taxpayer no longer has any assets that can be used to pay off the tax liability. In other words, collecting the tax would be an exercise in futility for the IRS.
How Does This Affect Me?
If the IRS recognizes your status as not collectible, the collection of your tax liability will be suspended until you are in a better financial position. This means no payment at all will be made during the period in which your status exists. If your status is not yet recognized as not collectible, the IRS may require you to make payment in installments, or even garnish your wages. All of these are suspended during the existence of a taxpayer’s non-collectible status.
What Are the Downsides?
There are still some downsides to this. Even though collecting the tax is suspended, interest and penalties will continue to accrue, meaning your tax liability will still increase. The IRS will also require you to provide annual financial statements showing that your account is still not collectible. If your financial statements show improvement then the IRS may remove your not collectible status and renew their efforts to collect the tax.
How Do I Qualify?
In order to qualify for not collectible status, you have to meet at least one of the following requirements:
- Your gross annual income is less than $84,000
- Your living expenses fall within the guidelines issued by the IRS
- You’re unemployed and have no source of income
- Your income derives only from Social Security benefits, unemployment benefits, or welfare benefits
- You have little to no money left after paying your basic living expenses every month
- There are only a few years left within the 10-year statute of limitations to collect the debt.
Since taking the step towards not collectible status can be difficult and confusing, it’s best to engage the services of an IRS tax lawyer to help determine if this is the best course of action for you. Additionally, a tax lawyer will also be in a much better position to determine initially whether or not you qualify for not collectible status.
Statute of Limitations
The statute of limitations refers to the fact that the IRS only has ten years to collect your tax liability. If the IRS fails to collect beyond the ten-year period then the tax debt will be permanently not collectible. If you only have a few years remaining until the statute of limitations expires, then getting qualified for not collectible status may be a good option. Take note, however, that if ever your financial standing improves as shown in your financial statements, then the IRS will resume collecting the tax liability.
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