Currently Not Collectible (Stop the IRS)
If you are an Atlanta taxpayer that owes taxes to the government, you can stop IRS collection activity by being deemed Currently Not Collectible. Once you obtain this status, the IRS will stop sending you nasty letters about your tax debt. And most importantly, the IRS will not be able to seize your assets. The IRS will, however, file a lien on your property. This will hurt your credit rating and will make it harder (but not impossible) to sell your property.
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 it, given the right facts and circumstances. Furthermore, there is planning that you can take advantage of 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 pandemic).
It is not a problem to 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.
How Long Does Currently Not Collectible Status Last?
It is important to note that Currently Not Collectible status is temporary. The IRS will check in with you every year or two to see if your situation has changed. With that said, the 10-year statute of limitation 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 debt in full, and the tax debt will simply go away.
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Massey and Company is a boutique CPA firm in located in Atlanta, Georgia serving the needs of small businesses and their owners.