One option to “resolve” an IRS tax debt is to have the debt placed in a “Currently Non-Collectible” status. As a Denver tax attorney, John McGuire has placed many IRS tax debts in a currently non-collectible status. The reason “resolve” is placed in parenthesis above will be better explained by the article below drafted by a Denver tax attorney at The McGuire Law Firm.
When the IRS places a federal tax debt in a Currently Non-Collectible status, the IRS is more or less agreeing that they will not actively collect on the tax debt. Although, the IRS does not actively collect on the debt (which is a benefit) there are ups and downs to having your tax debt placed in a currently non collectible status, which are outlined below. A tax debt is placed in a currently non collectible status by completing the appropriate financial statement(s) and providing the necessary attachments to verify the financial statement(s). Generally, when the IRS places a tax liability in this non collectible status, they are agreeing that the taxpayer is unable to make payments towards the tax debt.
The Good:
- IRS will not actively collect while your tax liability is in non-collectible status, thus you do not have to fear IRS bank levies, wage garnishments or the seizure of assets.
- The collection statute continues to run, meaning the amount of time the IRS has to legally collect on the debt gets shorter for the amount of time your liabilities are placed in non-collectible status.
- It is possible that the collection statute could expire while you are in this status and thus the IRS could no longer legally collect on the tax debt.
- Because the statute continues to run, you may be able to use this time in non-collectible status to place the debts in a position time wise whereby they could be discharged in a Chapter 7 bankruptcy, which could be part of an overall plan.
The Bad:
- In general, non-collectible status is temporary and at some point, in time the IRS is likely to request an updated financial statement to see if your ability to pay has increased. Generally, taxpayers are placed in a non-collectible status for 12-24 months.
- Penalty and interest continue to accrue on the tax debt while you are in non-collectible status. Thus, if your circumstances change and two years down the road you can pay the debt, the debt will have increased due to the accrual of penalty and interest.
- Many tax attorneys and taxpayers feel that this status is temporary and therefore does not provide the overall mental relief they are seeking to know the tax debt is fully resolved.
- Generally, given the new IRS regulations from May of 2012 that impact the calculation of an offer in compromise, if you are in a position to have the IRS place your liabilities in a non-collectible status, you are likely also in a position to settle your tax debt through the IRS offer in compromise program. Thus, if your liabilities are only in a non-collectible status, you may be doing yourself a disservice by not trying to settle the tax debt now and fully close out the issue.
An experienced Columbus tax attorney at The McGuire Law Firm can help resolve your IRS debts, problems or other issues. Further, a tax attorney can assist you to prevent IRS problems in the future.