What to Do If You Cannot Afford Your IRS Tax Liability
Can’t afford to pay your taxes? Struggling to make ends meet? We can help you apply for hardship status with the IRS. To learn more, contact The W Tax Group today.
How to Apply for Uncollectible Status
To apply for uncollectible status, you need to prove to the IRS that you cannot afford to pay both your living expenses and your tax bill. The IRS will not require you to pay your tax bill if it causes severe economic hardship.
Typically, to prove hardship, you will need to fill out Form 433-F (Collection Information Statement). This form requests detailed information on your assets, debts, income, and expenses.
If the IRS wants more information, you may need to file Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals) or Form 433-B (Collection Information Statement for Businesses). The IRS may also require you to provide supporting documentation to back up the info you include on your 433 forms.
How the IRS Determines If Your Account Is Uncollectible
Unfortunately, just because you believe you can’t afford your tax bill doesn’t mean the IRS will agree. The IRS has a very narrow idea of what people should be spending on living expenses.
The agency has mapped out standards for food, clothing, shelter, and other essential costs for people in different areas of the country, if your expenses exceed these amounts, the IRS typically won’t take them into consideration when reviewing your request for uncollectible status.
For instance, if the IRS thinks that you should be spending $1000 on housing and you’re spending $1500, you won’t be able to count the $500 as an allowable expense. Note these are just sample numbers. Additionally, the IRS also won’t take credit card payments or other expenses it considers non-essential into account.
The IRS makes exceptions for certain situations. In particular, if you have a lot of healthcare expenses the IRS will take them into account when reviewing your application. A tax attorney has a lot of experience negotiating with the IRS and a thorough understanding of their allowable living expenses. They can often help you get the largest exemptions possible for your situation.
Other Factors the IRS Considers When Assessing Currently Not Collectible Status
Before labeling your account as currently not collectible (also called status 53), the IRS will want to ensure that you have taken steps to avoid getting into this situation again.
For instance, if your tax liability is due to your employer not withholding enough from your paycheck, the IRS may make you change your withholding before it approves CNC.
Similarly, if your tax liability is due to not paying taxes related to self-employment income, the IRS may require you to submit a year’s worth of estimated quarterly taxes before it is willing to approve your application.
What to Expect With IRS CNC Status
If the IRS labels your account as uncollectible, interest and penalties will continue to accrue on your account. You can make voluntary payments if you like, but you don’t have to. The IRS will keep your tax refunds and apply them to your balance.
When you’re in CNC status, the IRS may file a federal tax lien against your assets, but generally, the agency won’t levy (seize) any assets. If you have a serious delinquency, the agency has the right to contact the State Department to have your passport revoked, but typically, the agency doesn’t do this with uncollectible IRS accounts.
Generally once a year, the IRS will review your financial situation. If you accrue additional federal tax liabilities, the IRS may remove you from CNC status. You are not necessarily required to file all returns when on CNC status, but the IRS recommends doing so.
What If the IRS Rejects Your CNC Application
If the IRS refuses to label your account as uncollectible, you can request a meeting with an IRS collection manager. You can also appeal the collection actions the IRS takes against you. Alternatively, you may want to contact a tax professional to help you.
CNC and the Collection Statute Expiration Date
Most tax liabilities expire the later of 10 years after they’re assessed or 10 years after the filing due date. The date the bill expires is called the Collection Statute Expiration Date (CSED). If the CSED occurs while your tax account is in CNC status, the tax liability will go away. The IRS will no longer be able to collect on this amount.
There are certain actions that can extend the CSED. For instance, if you apply for an offer in compromise, the CSED clock will stop ticking while the IRS reviews your application, but the time will be added back on once your application is approved or denied.
Similarly, if you file for bankruptcy, the clock will also be paused temporarily and the time will be added on. In some cases, the IRS asks taxpayers to sign a waiver to extend the CSED. Ideally, you should never sign this type of document without consulting with a tax professional.
Get Help Applying for Currently Not Collectible Status
If you cannot afford to pay your tax liability, the IRS collection tactics could put you in economic hardship. Don’t let that happen. Instead, if you qualify, apply for CNC status and temporarily stop the collection activity on your account. To learn more about CNC and other options for dealing with unpaid taxes, contact us today.
The tax attorneys at The W Tax Group have extensive experience helping people who cannot afford to pay their taxes or who need help negotiating with the IRS. We can help you get the best outcome possible for your situation.