As published in the Winter Park/Maitland Observer, Thursday Jan. 3, 2012 Edition Offers... Read More »
What Happens When You Can’t Pay Your IRS Debt?
In these bad economic times few of us have any extra cash laying around after we pay our monthly living expenses.
The IRS doesn’t care about that, right?
Wrong.
If you can’t pay your debt and can prove it, the IRS will stop (at least temporarily) attempting to collect the debt from you.
Non-Collectible Status
The IRS does not want to waste it’s valuable resources in pursuing collection from taxpayers who clearly cannot pay their debts in full.
For this reason if you are able to prove – in addition to your having no assets – that you do not have any surplus income after paying your monthly necessary living expenses, the IRS will place your delinquent account in what is known as “non-collectible status.”
In order to get your account placed in non-collectible status you must provide IRS Financial Statements along with detailed bank records and supporting financial information proving your inability to pay.
It is not uncommon to have a taxpayer remain in non-collectible status until the statute of limitations on collections runs out.
Does Non-Collectible Status Mean the Debt is Written Off?
No.
Non-collectible status is not the same as a write-off of the debt.
The tax debt remains on the books and the IRS will monitor the taxpayer’s subsequently filed tax returns to determine if there is any positive change in the taxpayer’s ability to pay the tax debt.
Non-collectible status merely means that the IRS has determined that enforced collection action would be fruitless at this time.
It does not mean that your tax debt has gone away and it does not preclude the IRS from filing a federal tax lien against you.
Author’s Note: If you qualify for non-collectible status you may also qualify for an Offer In Compromise.
Great post. Most people don’t realize that the IRS can be stopped by filing some paperwork with them. Instead of running all they need to do is prove to the IRS they don’t have the assets to pay. Another good option and far less paper work than filing for an OIC or getting declared uncollectible is to file for an installment agreement. With an installment agreement the tax payer will be required to make a minimum payment amount monthly towards the tax amount owed, but won’t be required to pay in full and this stops penalties from accruing once this is filed with the IRS.
can you delare back taxes from 7 or 8 years ago in a bankruptcy?
Diana,
I need more information. When were the returns filed? Were they audited? Was there any fraud involved? What type of bankruptcy? Chapter 7 or Chapter 13?
Is there a special form that needs to be filed along with your financial statements when you are requesting that IRS to determine that you qualify for non-collectible status