At first glance, it seems like “Currently Not Collectible” is a great idea.
It gets the IRS off your back and forces them to leave you alone. And you can breathe a sigh of relief. Right?
Well, yes and no.
The upside to “Currently Not Collectible” is that yes, the IRS does acknowledge that you are living in financial hardship and cannot pay your tax debt right now. (This means having little to no leftover money after paying essential living expenses each month.) And they “leave you alone” for a while. They hold off on collecting past due taxes, they won’t garnish your wages or levy your bank account, and they stop all collection activity.
The downside is that those debts don’t go away. They’re just “currently” not collectible, not “forever” not collectible.” And – surprise – the balance continues to collect late penalties and interest. Plus, you don’t get to keep any future tax refunds – the IRS pockets them towards your debt. And the IRS can still file a lien against you – it’s called a Notice of Federal Tax Lien, and it shows up on your credit report and lets creditors know that you owe lots of tax debt. So, good luck buying a car.
The idea is that you get out of “Currently Not Collectible” status sooner rather than later. It can provide some breathing room for you to get back on your feet – but it isn’t designed to take away your tax worries forever. It just puts them on the back burner for a while.
How Long is “Currently?”
You don’t get to decide when you’re ready to pay your tax debt back (another common misconception.) The IRS does. Based on your individual case, the IRS inputs a “closing code” on your file that dictates the amount of money you need to earn in order to start paying your tax debt again. Then they watch to see if you make the threshold.
If you file a tax return that pings the closing code and reaches the amount they’ve set, then your debt will be moved back into “Collectible” status. And all your problems will start over again.
Is “Currently Not Collectible” Status Worth The Trouble?
Here’s a brief rundown of what you need to do to file for Currently Not Collectible status. (Note: We’re delighted to help you with this! It’s what we do. But it’s still a lot of work.)
And after that, you still might not get approved.
So the question is: Is “Currently Not Collectible” worth it to you?
Only you can decide that. (And only you can prevent forest fires.)
For more information on Currently Not Collectible status, you can read this: Currently Not Collectible (Internal Revenue Manual 5.16.1)
If you have any questions, give us a call at 844-841-9857, or schedule a free consultation here.