TPT002 – Examining the IRS Hardship Status: Currently Not Collectible
Contrary to what collectors at the IRS may tell you, there is a hardship status available to you known as currently not collectible. Essentially, this means that the IRS agrees that you are financially unable to pay your tax debt at this time without it becoming a financial or economic hardship for you and they agree to forbear collections activity on your account.
To be clear, this does not do away with your tax debt. It simply means that the IRS is going to take some time off from pursuing your case. This can last for years and it is not uncommon for taxpayers who are placed in currently not collectible status to remain there until the collection statute of limitations passes.
So how can you qualify for this hardship status?
The first step is preparing a financial statement to the IRS. This financial statement is known as a Form 433 and it is a comprehensive list of your assets, debts, income and expenses.
The IRS will examine your financial statement to see if you can actually pay your taxes or if doing so will create a hardship for you. Here’s what they are looking at. On the income/expense side, they are certainly considering your full income as reported on your paystubs or other documentation. They are also looking at your expenses; however, when considering your expenses, the IRS is considering their national guideline expenses or the Collection Financial Standarsds), not your actual expenses. The guideline expenses are generally less than your actual expenses. From this examination, the IRS must find that paying your reasonable living expenses will leave you no money left to pay the taxes.
Next, the IRS will look to your assets to see if they can provide some relief to paying your taxes. Essentially, they are looking to see if there is significant equity in the assets that could be applied to your tax debt, but they will not require you to take a step that will put you in further hardship – like selling your car that would prevent you from getting to work.
I appreciate you listening and encourage you to stop back in for the upcoming episodes of Tax Problem Toolkit. The next episode will drop next Thursday morning where we discuss using bankruptcy to resolve your tax issues.
Remember, this podcast can’t happen without you and your questions. I understand tax problems are pretty private affairs and you don’t necessarily want to share your information with just anyone, even a lawyer, but if you would like some information about resolving tax problems, please send those to me via e-mail at Connect (at) 6MinuteLegal.com or visit 6MinuteLegal.com/Connect.