An Overview of the IRS Tax Collections Process for Non-Tax Lawyers
20. Currently Non-Collectible Status
Now, I want to talk to you about Currently Non-Collectible status.
Currently Non-Collectible status or as it’s called in the IRS system, it’s what’s called Code 53, the code that the IRS uses.
Currently Non-Collectible status is a temporary hardship status that’s granted from the IRS that frees people from the burden of paying their tax liabilities immediately. It’s like a ceasefire when you negotiate with the IRS. The IRS won’t take any collection activity. The taxpayer doesn’t have to pay any liability. This is usually temporary. It usually lasts for a period of about 18 months.
When the IRS places a taxpayer in Currently Non-Collectible status, they will not designate a time that the Currently Non-Collectible status will expire. So, it’s an undefined period before a Currently Non-Collectible status expires.
However, usually about the 18-24 month mark after Currently Non-Collectible status has been implemented the IRS will take a review of the account and often ask the taxpayer for updated financial information. Or if you’ve obtained a job, they’ll ask your current information on that. Or, they can ask for a variety of information.
In addition, taxpayer should file tax returns showing large swings in income–If your client’s unemployed for a month or for a year, and the next year he gets a $150,000 job and file the tax return reflecting that–that will automatically kick some clients out on the Currently Non-Collectible status. Because of the temporary nature of the status, the IRS can make a determination and kick them out of it at anytime.
With that said, it is a viable option for several reasons. Number One, Currently Non-Collectible status will toll the Statute of Limitations. It will cause the Statute of Limitations to keep running. So, if you’ve got a client who is towards the end of their Statute with respect to certain years, Currently Non-Collectible status can be a great way of putting the taxpayer out of harm until that Statute expires and the liability falls off.
Secondly, the important thing to consider with Currently Non-Collectible status is because of the risk to the government, because you’re basically stating that you’re taxpayer can’t pay anything to the government. The important thing to know about Currently Non-Collectible status is oftentimes the IRS will file a lien against the taxpayer. The government will want to secure their interest in any property that the taxpayer has. If the taxpayer owes a liability over $10,000, the government puts a Currently Non-Collectible status.
Oftentimes they will file a lien. Lien determinations are often made separately. They are not a condition on Currently Non-Collectible status. But oftentimes they go hand-in-hand. It’s really important as a practitioner that you be aware of the potential for liens with Currently Non-Collectible status.
Currently Non-Collectible status, as I mentioned, is a temporary status. But if you have a taxpayer who is retired, or if you have a taxpayer who is packing up and leaving for Mexico, or a taxpayer who is not going to show a significant change in income, if there are no significant changes in income and a taxpayer is in Currently Non-Collectible status, they can theoretically stay in that status through the life of their account.
This is great with taxpayers who are leaving the country. It is great with taxpayers who are retired. Oftentimes, by putting them in Currently Non-Collectible status, it’s an easier way of resolving their tax liability than getting them on a payment plan or getting them through the Offer in Compromise program.
So, currently Currently Non-Collectible status depending on how it’s used can be a great tool for resolving tax liabilities with little or moderate effort to get it pushed through.