The Internal Revenue Service (IRS) is the agency responsible for collecting federal taxes. Unfortunately, not everyone can pay the full taxes when it is due. In such cases, the IRS may issue a notice of non-collectible status, which prevents them from collecting any outstanding taxes from the taxpayer.
This blog post will provide an overview of how to obtain non collectible status IRS and the various consequences of obtaining this status.
Understanding Non-Collectible Status
The IRS has a unique status assigned to certain tax debts known as “non-collectible” status. This status can be assigned to individuals who owe the IRS back taxes but cannot pay the total amount due to their current financial situation. This status can provide taxpayers with great relief when dealing with their tax debt. It can also help alleviate some of the stress of owing the IRS money.
Eligibility
The IRS determines eligibility for non-collectible status by considering the taxpayer’s income, expenses, and assets. Suppose the taxpayer’s income is insufficient to cover their living expenses. In that case, the IRS may allow them to enter a non-collectible status.
However, say the taxpayer has sufficient income to pay their taxes. The IRS may require them to enter into a payment plan. To be eligible for non-collectible status, the taxpayer must show that their total assets are insufficient to cover the tax owed.
In addition, the taxpayer must demonstrate that the full amount of the taxes due cannot be paid in a lump sum. Suppose the taxpayer is deemed eligible for non-collectible status. In that case, the IRS will suspend collection activity for a period of time.
Consequences
If you fail to pay your taxes, the IRS can designate your account as non-collectible. This implies that the IRS cannot collect the money you owe them, at least for now. This non-collectible status is a serious matter and can have several consequences. Firstly, the IRS will place a lien on your assets or property. This lien will remain in place until the amount due is paid in full or until the IRS releases it. Fees and interest will continue to accrue on the amount due until it is paid.
This means that the longer you fail to pay your taxes, the more you will be liable. Additionally, if you fail to pay the amount due within ten years, the IRS can write off the debt, and you will no longer be liable.
How to Obtain Non-Collectible Status
It can be a difficult task to obtain non-collectible status from the IRS. But with the right approach, it is possible to get the IRS to agree to this status, and the debt can be resolved. Here is a comprehensive guide on how to obtain non-collectible status from the IRS.
Learn About Non-Collectible Status
Before attempting to obtain non-collectible status from the IRS, non-collectible status is an agreement between the IRS and the taxpayer that the taxpayer cannot pay the current amount of taxes due. This status prevents the IRS from collecting or enforcing the tax debt and the taxpayer from being subject to enforcement actions such as levies or liens. The taxpayer must still pay the taxes due, but the amount can be reduced and spread out over a longer period.
Gather Financial Documents
The IRS must assess taxpayers’ financial situation to determine if they qualify for non-collectible status. The taxpayer should therefore gather all the necessary documents that will help demonstrate their financial hardship. These documents may include pay stubs, bank statements, tax returns, and other documents that show the taxpayer’s income and expenses.
Contact the IRS
The next step is to contact the IRS and explain the situation. The taxpayer should explain why they cannot pay their tax debt and provide the documents they have gathered to demonstrate their financial hardship. The IRS may then agree to put the taxpayer in non-collectible status.
Negotiate
Suppose the IRS does not agree to put the taxpayer in non-collectible status. Then the taxpayer may have to negotiate with the IRS. This may involve offering to pay a reduced amount or a payment plan. The taxpayer should also be prepared to provide additional documents or information to the IRS to support their case.
Request an Extension
If the IRS still refuses to grant non-collectible status, the taxpayer may have to request an extension. The taxpayer should explain why they cannot pay their tax debt and need additional time. The IRS may then agree to extend the deadline for a certain period.
Appeal
Perhaps the IRS refuses to grant non-collectible status or an extension. In that case, the taxpayer can file an appeal with the IRS. The taxpayer should provide evidence to support their claim and explain why they believe they should be granted non-collectible status.