In this post, I will explain the uncollectible status, also known as the “currently not collectible” status, and how to notify the IRS that you are currently not collectible. When the IRS deems you to be uncollectible, it will not take any levy action against you and will not seize any of your assets or income. This is a powerful tool that can help those who just need a break from IRS enforcement, especially during these difficult times.
Being currently not collectible on taxes simply means that the taxpayer has no available equity in assets and no sufficient income to cover his or her IRS allowable expenses. Allowable expenses will be described briefly below. The uncollectible status not only fends off IRS enforcement action, but it also allows the 10-year collection statute to continue to run. However, the taxpayer still owes the tax and interest continues to run on the outstanding debt. In addition, the IRS may file a Notice of Federal Tax Lien to secure its interest in assets owned or acquired in the future.
So, if the uncollectible status does not resolve the tax debt, why should you consider it as a collection alternative. The reason is that the uncollectible status allows you to BUY TIME. Here are some situations where buying time is necessary:
- When you are currently not collectible, you have time to get into tax compliance which is getting the past six years of tax returns filed.
- Buying time is also great for when the 10-year collection period is about to expire on your tax debt. The last thing you want to do is to file bankruptcy, file an Offer-in-Compromise, or have a pending Installment Agreement that stops the 10-year clock.
- Further, you can ride out the 3-year period for dissipated assets (covered in later posts) so that you can file an Offer-in-Compromise with a better offer amount.
How do you get put into uncollectible status with the IRS? To be deemed uncollectible, you must submit a Form 433-A or Form 433-B (if you or your business is assigned to a Revenue Officer) or Form 433-F (if you are in automated collections) with your supporting documentation. On either Form 433-A or Form 433-F, you must disclose your assets, income, and monthly living expenses. However, the amount of expenses can be limited depending on the type of expense. Expenses such as food, clothing and misc., housing and utilities, vehicle costs are limited to the maximum national or local standards even though you may spend more per month. For example, the housing and utility standard for a family of 2 in Cobb County, Georgia is $1,895.00. This is the maximum amount of housing and utilities expense that can be claimed on the Form 433-A despite many taxpayers paying much more than that.
After filling out the Form 433 and gathering your supporting documentation, you will then send the documents to the IRS. For my clients, I also send an analysis and a cover sheet that substantially increases the chances of getting my clients into uncollectible status.
You send the Form 433-A or Form 433-B and supporting documentation to your assigned Revenue Officer. If you are sending the Form 433-F, you can send everything to your local IRS collection center. When the IRS determines you are currently not collectible, you will receive a Letter 4223 in the mail. Processing uncollectible status determinations will take some time but if you, or your tax professional, did everything correctly, you will be considered uncollectible in a few weeks’ time.
If you or someone you know is facing economic hardship and needs assistance requesting uncollectible status and how to deal with the IRS, please feel free to contact me at either (404) 747-7073, or by email at [email protected].
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