Non-Collectible Status, When (and when not) to use it...
We often get questions about non-collectible status when we discuss tax resolution options. Many people have heard of this resolution option but are not sure when to put it to use.
First of all, non-collectible status is not a permanent resolution, but rather a temporary status(also known as hardship status). Non-collectible status could be better defined as a holding period until a permanent resolution can get established.
Remember, the IRS wants all tax payers to 1. be in compliance and 2. have all tax debt resolved. For our purposes here, compliance simply means having all tax years filed and having paid in the current year(such as adequate withholding taxes or current on estimated quarterly payments). The three most common ways to get permanent tax resolution are an installment agreement, offer in compromise, and bankruptcy. We will not discuss bankruptcy here, as it is handled through bankruptcy court and not the IRS. Everyone knows what an installment agreement is and the offer in compromise is settling your debt for less than you owe.
When?
If your tax debt is approaching the Collection Statute Expiration Date (CSED) and is about to expire, this may be an perfect time to move your IRS debt into non-collectible status. Non-collectible status does not place your CSED date on hold.
Many people are not in compliance with the IRS and cannot be placed into a permanent resolution. If this is you, a non-collectible status will stop all collection activities from the IRS so that you can get time to get into compliance. Use this opportunity to get into compliance and then immediately seek a permanent resolution.
Finally, if you currently are being levied from the IRS moving your debt into non-collectible status will stop a levy immediately.
When not to place your debt in Non-Collectible status
If your balance to the IRS is over $10,000 the IRS will place a lien on you when you move your debt to non-collectible status. A lien will negatively effect your credit score and your ability to borrow money. Do not place your debt into non-collectible status is you expect to apply for a loan.
In certain circumstances, the IRS will suspend your passport if you are in non-collectible status. If you owe more than $50,000 this is a likely circumstance while your debt is in non-collectible status. Do not place your debt into non-collectible status if you plan on leaving the country in the foreseeable future.
If you own real property. As stated above, the IRS will place a lien on you if you owe more than $10,000 and place your debt into non-collectible status. If you owe a large balance and keep your debt in non-collectible for a long period of time it is possible the IRS could obtain a judgment from that lien and force you to sell your home. Realistically speaking, this will not happen if your balance is less than $50,000 or you move your debt out of non-collectible status within a couple months.
My name is David Krausse, I am a licensed Enrolled Agent, admitted to practice before the IRS. I specialize in honest, ethical tax resolution services serving Los Angeles, Ventura, and Santa Barbara Counties. If you have a tax debt to the IRS and/or the state, contact me at 877-782-9383 or visit our website to discuss your circumstances. I will always give you a free, honest assessment of your most likely outcome and how your case can be resolved.
