Currently Not Collectible status occurs when the IRS agrees that you cannot afford to repay the debt, and doing so would create an economic hardship on you. It is forbearance by the IRS, a break from enforcement that can last years. Although you still owe the balance and the IRS will continue to add penalties and interest to the amount due, the IRS will not try to collect the unpaid tax from you.
The first step to any tax resolution will be to bring the account into filing compliance by filing any missing tax returns. We can go back as far as 10 years to file original tax returns. One of the biggest mistakes that taxpayers' make is to not file their tax returns on time.
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can't pay your full tax liability, or doing so creates a financial hardship. The IRS will consider your unique set of facts and circumstances:
- Ability to pay;
- Expenses; and
- Asset equity.
The IRS will generally approve an offer in compromise when the amount offered represents the most they can expect to collect within a reasonable period of time. Explore all other payment options before submitting an offer in compromise. The Offer in Compromise program is not for everyone.
If you are unable to pay your tax debt in full you can make monthly payments. When these payments do not pay off the debt in full prior to the expiration of the statute of limitations the taxpayer on pays a portion of what they actually owe.
Taxpayers may qualify for relief from penalties for failure to file a tax return, pay on time, and/or deposit taxes when due through a first time penalty abatement or reasonable cause abatement. The failure-to-pay penalty will continue to accrue, until the tax is paid in full. It may be to your advantage to wait until you fully pay the tax due prior to requesting penalty relief under the Service's first time penalty abatement policy.
The IRS statute of limitations period for collection of taxes -- the IRS filing suit against the taxpayer to collect previously assessed taxes -- is generally ten (10) years. Thus, once an assessment occurs, the IRS has 10 years to pursue legal action and collect on tax debt using the considerable resources at its disposal, which include levies and wage garnishments.