If you owe a tax debt that you can’t afford to pay, you can apply for Status 53, which is the IRS’ “Currently Not Collectible” designation. In addition to giving you breathing room on back taxes, becoming a Status 53 taxpayer stops all collection activities in progress, such as garnishments or levies. Currently, Not Collectible status is intended to relieve taxpayers who are struggling financially and have no money left to tackle a tax debt after all living expenses have been paid. The IRS will still send you a yearly statement indicating how much is owed, but it’s not a collection letter. This doesn’t mean, however, that your account is in complete stasis. The IRS will take your yearly tax refund through a “refund offset” and interest and penalties will continue to accumulate.
So how do you qualify for this form of tax relief? While every person’s situation is unique, the IRS may consider you eligible for Currently Not Collectible status if one of these three situations applies to you.
1. You Have No Surplus Income
If your living expenses are allowable within the IRS guidelines and you have next to nothing left over after paying for basic living expenses like food, clothing, out-of-pocket healthcare costs, utilities, and mortgage / rent, you may qualify for Status 53.
2. You Are on Public Assistance
If you are on a fixed income that only consists of unemployment benefits, welfare, or Social Security, the IRS is likely to conclude that for the time being, your tax debt is not collectible.
3. You Have No Income
If you are unemployed due to illness or inability to find work (provided you are not a seasonal worker) and have no other source of income, the IRS may approve you for Currently Not Collectible status until your situation improves.
How Long Does Currently Not Collectible Status Last?
The amount of time you are allowed to remain in Currently Not Collectible status is related to how much you earn and how quickly your financial situation improves.
For example, if you have a seven-year-old tax debt and make $30,000 a year (leaving you little to nothing after you pay for rent, utilities, food, and a monthly bus pass), the IRS agent who approves you for Status 53 may put a closing code for $35,000. (A closing code triggers a review of your status.) This means that if you file a tax return showing income of $35,000 or more (minus any losses or deductions), the IRS will follow up with you to see if you can afford to start making monthly payments.
While the IRS will never make you choose between feeding and sheltering your family and paying back taxes, it is important to remember that Currently Not Collectible Status is for those who encountered a financial downturn. If you are driving a BMW, sending your children to private school, and living in a home in an upscale neighborhood while your IRS tax debt goes unpaid, your application for relief will probably be refused.
If you don’t qualify for Currently Not Collectible status, you can still propose an offer in compromise or installment agreement based on how much you can pay. A qualified tax law attorney can help you select the right option for dealing with your tax debt.
Contact a Seattle Tax Attorney
If you are wondering about your eligibility for the Currently Not Collectible program, contact Boeshaar Law. We can review your financial situation and use IRS guidelines and calculations to determine whether or not you qualify. If you are a good candidate for the program, Attorney Bob Boeshaar will help you prepare and submit the necessary financial documentation and tax forms. If not, we can discuss the option of a Payment Plan or Offer in Compromise instead. For more information, contact us or call (206) 899-4860.
Robert V. Boeshaar Attorney at Law, LL.M.,PLLC
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