“Currently Not Collectible” Program
As of late, there has been an increasing number of television commercials and radio ads advertising things such as “Currently not collectible tax programs” or “IRS hardship programs.” The advertisings state that these programs are available for a limited time only. The harsh reality is that there are no such programs that someone can join of their own accord. There has never been. So, the simple idea that they are limited time is unfounded.
When IRS agents find that they have are working with someone who is unable to pay their taxes without enduring unreasonable hardship, they identify those individuals with a “not collectible” status. This is a common occurrence.
The story typically unfolds as follows. A citizen fails to file tax returns, pay their taxes, or possibly even both. The IRS attempts to collect the missing taxes by sending the taxpayer notices through mail, phone calls, or face to face visits.
When those attempts to collect unpaid taxes are unsuccessful, the IRS will begin actions to try to force the taxpayer to pay their dues. Their tactics can include garnishing salaries, notices of tax liens, and seizing assets or bank accounts.
If the taxpayer can prove that they would encounter economic hardship by paying their taxes, then the IRS will stop attempting to collect from the taxpayer, and will change their account status to “currently not collectible.” That means the IRS simply modifies their account to show that they are unable to pay back what they owe while maintaining minimum monthly living expenses.
Economic Hardship According to the IRS
Remember that the IRS may have a different definition of “economic hardship” than may be customary in American culture. Many of the things the taxpayer might see as a necessity the IRS could consider a commodity or a personal inconvenience.
Even if your account is set as “currently not collectible,” that does not mean that the IRS will forget about your debt. The IRS will continue to attempt to collect a debt until it is paid or the statute of limitations is met. That means that even if your account is set to “currently not collectible,” you must continue to file tax returns and answer questions regarding your income and expenses.
Taxpayers are also responsible for correcting the mistake that caused the unpaid tax in the first place. For example, if a taxpayer gets behind because his or her employer is not withdrawing enough income taxes from each paycheck, the taxpayer is expected to begin setting aside enough money every month to pay current and future taxes. In this case, the taxpayer must adjust the amount of money that gets withheld from his income. If the taxpayer is self-employed, they must be current with their estimated tax payments before the IRS will stop attempting to collect taxes.
Documents Needed for “Currently Not Collectible” Status
The IRS will want detailed information about a taxpayer’s financials before deciding to close a collection case by changing someone to the “currently not collectible” status. The IRS uses Forms 433A and 433F for this information. These forms must be submitted before a taxpayer can be considered for “currently not collectible” status. In addition to these forms, taxpayers must also send supporting documents detailing income, daily expenses, and assets. These documents will show income and expenses such as pay stubs, car loan statements, or mortgage statements.
“Currently Not Collectible” Status is Not Permanent
If the IRS does grant a taxpayer “currently not collectible” status and closes their case, the case will automatically be reopened and collection efforts will recommence if the taxpayer fails to file their tax returns, gains a new tax liability, or if the taxpayer’s’ financial circumstances change enough that they could begin to pay back their old tax debt. For instance, if the IRS closed a case where the taxpayer owed $30,000 by changing a taxpayer’s status to “currently not collectible,” and the taxpayer gets a new position with a $31,000 yearly salary increase, the IRS will reopen the case and attempt to collect on old debts.
Sometimes the IRS will set specific follow-up dates when they stop attempting to collect. When that date rolls around, the IRS will change the account back to normal status and will begin attempting to collect the old taxes again. Once the follow-up date has come, regardless of any new circumstances or facts, the IRS will begin attempting to get the money they are owed.
It is important to note that a “currently not collectible” status is not a long term fix. It is merely a temporary relief for people who have found themselves in an unfortunate circumstance. The debt is still on record with the IRS. It is not forgiven or compromised. While under the “currently not collectible”t status, interest rates and penalties will continue to apply to the debt. They will continue to accrue until the debt is paid.