The IRS can stop or delay collection of your tax debt if you have financial difficulties. This does not remove the tax debt, but it puts the collection of it on hold until your situation improves. If you situation does not improve, the debt is written off once the 10 year statute of collection expires.
The IRS requests financial information such as your income, expenses and assets to determine your eligibility for the “Currently not collectible” status program. In some cases, a financial analysis is not required to establish non collectability. Some of the cases include the taxpayer having a terminal illness or excessive medical bills, incarceration, the only source of income is SSI, welfare, or unemployment.
If the cause of the collection hold is economic Hardship, and the payment of the taxes due would prevent the taxpayer from being able to pay “reasonable basic living expense”, the IRS considers
-Taxpayers age: Do they have the physical ability to keep working and earning income
-Employment history: Ability to obtain and keep a job
-Ability to earn: Do you have the technical skills and working history to making a living in the near future
-Number of Dependents: Do you support a large number of people?
-Status as a dependent of another: Are you a dependent of someone else?
This week, I was able to get my client’s IRS balance of $94,269.64 marked as Currently Not Collectible based on a critical medical condition, and although he has a retirement account, that 401K is what he has left to pay his reasonable living expenses. Now, what does the IRS consider as reasonable living expenses? Food, Clothing, Housing (utilities, rent, mortgage, insurance), medical expenses (including health insurance), Federal, state, local taxes, alimony, child support, other court ordered payments, etc.
An important thing to remember is that this hold does not stop the accrual of interest and penalties, however the 10 year statute of collection keeps counting. What does this mean? It means the IRS is running out of time to collect on your tax debt. It is important to also note that the IRS may file a tax lien to secure their position as a creditor.
Need help resolving tax debt with the IRS? Call us today. (713) 322-5600