Currently not collectible status protects you from the IRS, stopping levies, threatening letters and collection enforcement. It forces the IRS to simply leave you alone without requiring any payment on your end.
The IRS will consider your account to be currently not collectible if we provide them a collection information statement verifying that there would be a financial hardship if the IRS forced you to pay them.
To the IRS, currently not collectible is “putting a debt on the shelf” – they take your case out of their active collection inventory (shelving it). The Treasury Inspector General reports that from 2008-2013, the IRS reported 5.7 million delinquent accounts as currently not collectible.
In many cases, I have seen clients become uncollectible and remain there until the time frame the IRS has to collect (10 years) expires, after which the IRS debt is permanently removed and forgiven.
But what would make the IRS want to remove you from their inventory of uncollectible cases to determine if you are no longer entitled to financial hardship status?
To begin with, to remain uncollectible, the IRS requires that you file and pay all of your future taxes on time. That means if you are self-employed and previously had trouble setting aside money to pay your taxes, you have to do that to stay uncollectible.
In addition to remaining current on your future taxes, what else should you be aware of if you are uncollectible?
1. Increases in your income indicating to the IRS that you may no longer be in financial hardship. The IRS will be looking at your future tax returns, and comparing that your income levels when they determined that you were currently not collectible. If there are significant increases in your income, the IRS may contact you for a new collection information statement to see if the increased income translates into an ability to pay.
2. Sometimes, when the IRS places your account in currently not collectible status, they will mark a follow-up date for review of your account. If this occurs, in most situations, the IRS will give you two years as uncollectible until the follow-up date kicks in. The IRS usually marks a case for future review only if there is an indicator when your are placed in uncollectible status that there could be an increase to your ability to pay later. This could be the case if, for example, you earned significantly more last year, but had a dip this year and you cannot make payments to the IRS, they may mark your case for later review of whether the hardship continues.
3. The IRS has the right to review your uncollectible status for any or reason or no reason at all. After all, the money is owed to them, and they have the right to determine your situation has changed. Denying the IRS a request for a new collection information statement is a surefire way to increase their curiousity and make them really, really want it.
That being said, it is more the exception than the rule for the IRS to come back on their own later and review whether you should be knocked out of currently not collectible status. The most likely occurrence will be defaulting on your future tax filings and payments – and that is within your control.
Currently not collectible puts the IRS at bay, and allows you to live your life without IRS intrusions into your bank accounts, wages and property. When combined with the expiration of the statute of limitations on collection, it is a legitimate method of resolution for your IRS tax debt.