If you are a Georgia taxpayer who owes taxes to the government, you can stop IRS collection activity with Currently Not Collectible status.
It is a regular occurrence that we see clients in our Atlanta accounting firm who owe money to the IRS and they cannot afford to pay the bill. Sometimes this is for one year. Frequently it is for multiple years. Either way, the IRS offers a number of programs that provide tax relief to taxpayers who find themselves unable to pay the government.
The program that we are covering in this article is called “Currently Not Collectible” status. Other tax resolution solutions, which are discussed in other articles on our website, are the Offer-in-Compromise, the Installment Agreement or Payment Plan, and Bankruptcy. Bankruptcy is done through the courts and is not a program offered by the IRS.
The advantage of Currently Not Collectible status is that the IRS will stop sending you nasty letters about your tax debt. And most importantly, the IRS will not be able to levy or seize your assets.
The IRS will, however, file a tax lien on your property. This will make it harder (but not impossible) to sell your property. Check out our article on Federal Tax Liens in 2021 to learn about selling a house or refinancing a mortgage with a federal tax lien.
For the IRS to consider you not collectible, you will have to provide your financial statements to the IRS. There is significant work required to prove that you are not collectible. However, the effort is often worth the reward, given the right facts and circumstances. Furthermore, there is planning that you can implement to improve your numbers, such as maximizing allowable expenses.
The Math Behind Being Not Collectible
First, calculate net equity in assets (home, car, investment portfolio, etc.). Second, calculate gross monthly income, less allowable expenses. If these calculations show no funds available to pay the tax, then you will be deemed not collectible.
You can use current income numbers for purposes of the calculation. This helps your case if you have recently lost your job or had a recent decrease in earnings (such as during the COVID pandemic that has unfortunately hurt so many Georgia taxpayers).
You may obtain not collectible status if you have “dissipated assets” (assets disposed of in the past several years). However, dissipated assets are a problem if and when you apply for an Offer-in-Compromise.
If banks will not let you borrow against the equity in your assets, that equity may be excluded from the net available equity in assets calculation. This exception is not allowed in the case of an Offer-in-Compromise.
Georgia CPA Pointer: Apply for home equity loans at three banks. Be sure to keep copies of your rejection letters. These letters are ideal proof to the IRS that you cannot borrow against the equity in your house to pay off your taxes.
How Long Does It Last?
It is important to note that Currently Not Collectible status is temporary. The IRS will review your numbers every two years to see if your situation has changed. With that said, the 10-year statute of limitations will continue to run during the period that you are not collectible. With good planning, the statute of limitations may expire while you are not collectible. If so, the IRS will write-off your tax in full, and the debt will simply go away.
Wouldn’t that be great news?!
Founded by Gary Massey, Massey and Company is a boutique CPA firm located in Atlanta, GA, serving the needs of small businesses and individual taxpayers. Our services include tax preparation, tax planning, taxpayer representation before the IRS and state taxing authorities, audits, monthly bookkeeping, and accounting.
Our office is in the Buckhead – Sandy Springs area of Atlanta, which is an advantage to those looking for a local firm to handle their tax matters.