Currently Not Collectible
If there is absolutely no way for you to pay your tax debt, and no way for the IRS to collect the money owed via the more traditional forms of tax resolution, you can file for “currently not collectible” status.
“Currently not collectible” means exactly what it sounds like. The IRS will not be able to collect any owed taxes or penalty charges if:
- Your wages cover no more than your necessary living expenses so that there is no amount the IRS can garnish
- You have no assets worth levying. Remember that the IRS cannot seize an asset if you have less than 20 percent equity in the item or if the expenses involved in seizing and selling it are more than the equity is worth. This makes the IRS seeking another form of tax resolution unlikely.
The fact that you have nothing worth the IRS taking is not exactly an enviable position to be in, but it can help in dealing with them. If your account is deemed to be uncollectible, the IRS will stop the collection process until your financial situation improves and another form of tax resolution becomes more realistic. Interest and penalties will continue to build up against you, and you will have to provide financial statements each year to show whether or not you are still “currently” unable to pay.
If the financial statements show that your situation has improved enough, the IRS collection process will resume. But if the 10-year statute of limitations for back taxes expires while you have “currently not collectible” status, the tax debt itself will become permanently not collectible and no other form of tax resolution will be needed.