Blog : Tax Debt

When you owe money to the Internal Revenue Service (IRS) that you cannot afford to pay, one potential form of relief is having your account placed into uncollectible status. This status temporarily suspends collection activity from the IRS due to financial hardship. Here’s a closer look at what uncollectible status means and how to potentially qualify.

What is Uncollectible Status?

Uncollectible status effectively hits the pause button on IRS collections against you for an outstanding tax debt. If the IRS determines you cannot afford any payments due to your financial situation, it will code your account as temporarily uncollectible. This means:

• Active collection efforts stop (garnishments, levies, etc.)
• You don’t have to make any payments
• Penalties are suspended
• The statute of limitations continues running

However, interest will still accrue on the unpaid balance. And once your financial situation improves or a set period of time passes, the IRS can resume collections on the still-outstanding debt.

Qualifying for Uncollectible Status

To be considered for uncollectible status, you must demonstrate to the IRS that paying your tax debt would create a financial hardship by not allowing you to pay for necessary living expenses. The IRS uses allowable expense standards to evaluate if making any payment would be an undue burden.

You must complete Form 433-A (individuals) or 433-B (businesses) to disclose your monthly income, assets, and allowable living expenses like housing, utilities, transportation, taxes, child care, and more. If your income does not exceed your allowable expenses by a certain threshold, collections may be suspended.

The IRS will also examine your asset equity, non-wage household income sources, and ability to obtain a loan to pay the tax debt. Any “allowable” assets beyond expense coverage may be expected to offset your unpaid balance.

If approved for uncollectible status, the IRS will re-evaluate your situation every 1-2 years to reassess if collections can resume based on your finances.

Providing Relief from Collections

While not a permanent solution, achieving uncollectible status allows taxpayers with no means to pay their tax debt the chance to avoid aggressive collection actions during periods of financial hardship. It provides crucial breathing room to stabilize your situation without the constant threat of levies, garnishments, or asset seizures.

If you cannot pay your tax debt, explore your eligibility and properly submit for uncollectible status consideration with the IRS. The relief can help get you back on stable financial footing.

Get help resolving your tax debt – schedule a call with me today.

If you find yourself owing money to the IRS, it’s important to know that you have options for resolving that tax debt. Three potential paths include having your debt placed in uncollectible status, setting up an installment agreement, or negotiating an offer in compromise. Here’s a breakdown of what each option includes and the key differences:

Uncollectible Status

The IRS can categorize certain tax debts as temporarily uncollectible based on a taxpayer’s financial situation and inability to pay. To qualify for uncollectible status, you must demonstrate that any payment towards the debt would create a hardship by not allowing you to meet necessary living expenses.

If approved, uncollectible status places your debt on hold. The IRS will temporarily cease active collection efforts, and penalties/interest are suspended. However, statutory interest continues to accrue, and the debt remains due in full.

Uncollectible status lasts for a defined period based on your financial records. Once that period expires or if your financial situation improves sufficiently, collection activity resumes unless the statute of limitations expires in the interim. This option doesn’t forgive the debt but provides temporary relief.

Installment Agreement

As the name implies, an IRS installment agreement is a payment plan that allows you to pay off your full tax liability through affordable monthly installments over time. To get on a plan, you must prove your current income and confirm your ability to make the scheduled payments.

Installment agreements include a setup fee and continue accruing penalties and interest until your balance is paid in full. However, the IRS won’t pursue further collection action so long as you honor the installment terms.

Negotiating the appropriate payment amount and duration based on your resources is flexible. Installment plans can provide taxpayers with an extended runway to fully pay what is owed.

Offer in Compromise

The Offer in Compromise option is an agreement with the IRS to pay less than the total amount of tax debt you owe. It is only approved in situations where the IRS doubts its ability to collect the entire outstanding balance.

To qualify, you must disclose all relevant financial information and demonstrate an inability to pay your debt in full based on income, assets, and expenses. The offer amount is based on your available resources to pay toward the tax liability. Certain fees also apply.

If accepted, an Offer in Compromise provides a path for settling your IRS debt at a reduced amount and avoiding further collections. It’s ideal when it does not appear you’ll ever be able to get up from under the debt, but it requires meeting strict criteria to participate.

These three options provide unique opportunities for resolving unpaid tax debts with the IRS. Depending on your circumstances, one path may prove more viable and advantageous than the others in resolving your financial situation. It’s essential to work with someone who understands your entire financial situation and can help you identify the option that will work best for you.

If you need help resolving your tax debt, schedule a call with me today.

When dealing with tax matters, few documents are as critical as tax transcripts from the Internal Revenue Service (IRS). Tax transcripts provide an official summary of your tax return information for a given year or years. While they may seem like a mundane government record, reviewing your tax transcripts is important for several reasons.

Verifying Information for Loans and Other Finance Needs

One of the primary reasons tax transcripts are so important is because they allow you to verify your income and other tax details when applying for loans, mortgages, student aid, or other types of financing. Most lenders require official tax transcripts rather than simply your personal copy of the return. The transcript confirms the information you provided on your taxes matches what the IRS has on file.

Catching Errors and Discrepancies

Reviewing your tax transcripts each year is crucial for catching any errors, discrepancies, or missing information compared to what you actually filed. Everything from income sources and deductions to taxes owed could potentially have mistakes that don’t match your original return. Having the transcript allows you to identify and resolve those issues.

Substantiating Information for Legal/Tax Matters

In many legal situations and tax-related matters, providing official IRS transcripts substantiates your income, credits, deductions, and overall tax information. This documentation may be required for tax audits, amended returns, bankruptcy filings, divorce/family law cases, filing tax returns for previous years, and more.

Applying for Income-Based Government Assistance

Need-based government assistance programs like subsidized housing, Medicaid, or Social Security often require tax transcript documentation to verify your household’s income and other financial details. Access to these transcripts is vital when applying for and maintaining program eligibility.

Tracking Tax Account Activity

Beyond each year’s tax return information, IRS transcripts also provide a records trail of any changes, transactions, or activity impacting your overall tax account. This includes updates on payments made, penalties assessed, adjustments submitted, and more. Maintaining these records helps taxpayers stay organized and informed.

Understanding Tax Debt and Options for Resolving It

An IRS tax transcript can be invaluable for understanding your overall tax liability and navigating options to resolve any outstanding debts. The transcript provides a comprehensive record of your income, deductions, credits, and the total taxes owed for a given year. By reviewing this official documentation, you can verify the accuracy of the IRS’s assessment and identify any potential discrepancies. Additionally, the transcript outlines critical dates related to your tax debt, such as when penalties and interest began accruing. This timeline is critical for determining your position in relation to the 10-year statute of limitations for collecting IRS debts. With a full grasp of your tax liability from the transcript, you can explore appropriate resolution options like installment agreements, offers in compromise, or other settlement methods if you cannot pay the total amount owed.

While simply text-based transcripts, these documents from the IRS contain powerfully important official information. Obtaining and carefully examining your IRS tax transcripts lays the groundwork for making informed decisions about managing and resolving your tax situation.

Schedule your tax transcript assessment today!

If you owe back taxes to the Internal Revenue Service (IRS), one of the most critical things to be aware of is the 10-year collection statutory expiration date. This regulation places a strict time limit on how long the IRS can attempt to collect the tax debt from you.

Here’s why the 10-year collection statute is vitally important when dealing with an outstanding IRS tax liability:

Defines the Collection Window

The 10-year statute of limitations sets a finite timeline for the IRS to collect the taxes you owe. It begins on the date the IRS officially assesses the debt, either when you e-filed your return or when you received a demand for payment if you filed your return by mail. From that point, the agency has ten years to pursue collection through means like wage garnishments, tax refund offsets, bank or asset seizures, and tax liens. Once the ten years expire, the IRS is essentially barred from collecting that specific debt.

Provides an Endpoint for Financial Obligations

Knowing there is a defined endpoint for your repayment responsibilities provides clarity in financial planning. Open-ended tax bills can feel like a grey cloud indefinitely hanging over your finances. However, with the 10-year statute, you can map out a window for full repayment or develop strategies to have the debt forgiven if you cannot reasonably pay it off by the expiration date.

Prevents Excessive Dragout of Debt Repayment

In addition to defining a finish line for your financial obligations, the statute prevents the IRS from excessively dragging out the collection process on old debts. It protects taxpayers by ensuring the agency diligently pursues what you owe in that 10-year frame rather than casually making collection efforts over an indefinite duration.

Incentivizes IRS to Maintain Accurate Records

The statutory timeline incentivizes the IRS to maintain organized, accurate records around when debts began and accrued to ensure it does not inadvertently let viable collectible accounts expire before receiving payment. While extensions can be granted under certain circumstances, the agency aims to avoid having outstanding debts ruled uncollectible by missing the 10-year window.

Provides Possible Path for Debt Elimination

For those unable to reasonably repay what they owe the IRS within the 10-year period, the statute’s expiration provides a path for resolving the debt. While it is not advisable to simply try to run out the clock if you can reasonably pay, if your financial situation is such that the tax bill will realistically never be paid off, the expiration provides a mechanism for eliminating the debt after the date passes.

In summary, the 10-year collection statute places a critical time limit around how long the IRS has to collect outstanding tax debts from individuals and businesses. Understanding this regulation is critical, as it impacts financial planning, defines repayment obligations, protects against endless collection efforts, and can potentially provide a path for debt elimination in extreme circumstances.

If you need help resolving your tax debt, schedule a call with me today.

If you have outstanding federal tax debt, the IRS wants to see that you fully comply with your current tax filings and payment obligations. Demonstrating a renewed commitment to tax compliance is essential for resolving old debts favorably.

The IRS’s primary concern in collections cases is ensuring you won’t fall behind again on current and future taxes while paying off an old balance. After all, letting new liabilities accrue defeats the purpose of finally paying off past debts. Tax compliance reassures the IRS that you are getting and staying current.

Being tax compliant means:

• Filing all required returns on time
• Paying any current taxes owed in full when filing
• Making all required estimated tax payments if you have income not subject to withholding

When you meet these obligations for a period of time, the IRS is much more amenable to allowing you to pay old debts through an installment plan, accepting an Offer in Compromise to settle for less than owed, or even providing temporary relief from collections until your financial situation improves.

On the other hand, a lack of tax compliance while trying to resolve an existing debt is a red flag for the IRS. If you aren’t paying current taxes, they have little incentive to go easy on the past amounts you owe. The collections process tends to stall or become much more problematic if new delinquencies keep accruing.

Maintaining tax compliance also strengthens your negotiating position with the IRS. You can leverage your pattern of staying current to request lower user fees, penalty abatements, longer installment timelines, or a reduced offer amount. The IRS judges your future compliance risk, in part, based on how responsibly you meet your ongoing tax obligations.

At the end of the day, the IRS wants to see you value compliance and remain diligent about fulfilling your annual tax responsibilities going forward. Doing so builds trust and makes the IRS more willing to work with you to resolve old debts through affordable payments or settlement options. Tax compliance is the foundation for controlling your overall tax situation.

If you need help resolving your tax debt, schedule a call with me today.

Getting an IRS Final Notice of Intent to Levy (Notice LT11 or LT39) in the mail can be scary and stressful. This is the agency’s last warning before taking your money or property to satisfy an unpaid tax debt. However, you still have some options at this stage to prevent enforced collection action. Here’s what to do:

Don’t Panic

The Final Notice doesn’t mean all hope is lost. The IRS must follow set procedures before levying bank accounts or garnishing wages. You have a short window to take action and avoid enforced collection.

Call the IRS Immediately

As soon as you receive the Final Notice, call the number listed. Have your tax information ready, including notice numbers, tax periods, and the amount owed. Simply calling and getting a case opened can buy you some extra time while you explore resolution options.

Request a Brief Extension

On the call, you can request a brief pause on collections, generally 30-60 days. Explain that you need time to explore options for paying what you owe. A momentary halt on enforced collections gives you breathing room to make a plan.

Consider an Installment Agreement

One way to prevent levies or garnishments is to set up a monthly payment plan with the IRS. If you can’t pay the total amount you owe right away, you may qualify for an installment agreement. Establishing a monthly payment based on your income and assets prevents enforced collections as long as you make the minimum payments on time.

Request Relief as a Last Resort

If you legitimately cannot pay the tax debt due to financial hardship, you can request temporarily delaying collection or an Offer in Compromise to settle for less than owed. However, the IRS strictly evaluates qualifications and requires substantiating documentation.

The key message is that receiving the Final Notice does not mean all is lost. As long as you take prompt action and demonstrate a willingness to resolve the debt through available payment options, you may be able to avoid the IRS garnishing your wages or seizing your property or bank funds. The worst mistake is doing nothing after getting the Final Notice.

If you need help resolving your tax debt, schedule a call with me today to learn about your options.

If you have an unpaid tax debt with the IRS, one of the first steps they take is sending a series of letters and notices demanding payment. Understanding these notices and taking prompt action is crucial to resolving your tax issues as favorably as possible. Let’s decode some of the most common IRS collection notices:

CP14 Notice – This is often the first notice you’ll receive after failing to pay taxes owed on your tax return. It states the amount due, including penalties and interest, and requests full payment within a specified timeframe.

CP501 Notice – This is known as the “reminder notice” and follows up on the CP14 when the debt remains unpaid. It’s a stronger warning that if you don’t pay soon, the IRS will pursue enforced collections actions.

CP503 Notice – With this “third party” notice, the IRS notifies the companies you have relationships with, including employers and banks, that the IRS intends to pursue measures like garnishments or levies against you if the tax debt isn’t resolved.

CP504 Notice – This is the dreaded “Intent to Levy” notice. It means the IRS plans to seize your property, income, bank accounts, or other assets within 30 days if you don’t pay or make other arrangements with them.

LT11 Notice – If you ignore all the other warnings, this “Final Notice” provides a final demand for payment and notifies you that the IRS has approved seizing your property to satisfy the outstanding debt.

There are many other potential IRS collection notices (CP90, CP92, CP63, etc.). Still, they all have the same underlying message: Pay your tax debt immediately or face enforcement actions like liens, levies, garnishments, and more. The further you are in the notice stream, the more imminent the threat of collections activity.

The best way to avoid escalating issues is to address IRS collection notices head-on as soon as you receive the first one. Explore your options like payment plans, offers in compromise, or appealing the debt itself. But don’t ignore the notices, as that’s a surefire way to have your paycheck garnished or assets seized.

If you need help resolving your tax debt, schedule a call with me today to learn about your options.

If you owe back taxes to the Internal Revenue Service (IRS), you may be dealing with the agency’s collections process. IRS Collections refers to the actions the IRS takes to recover unpaid tax debts from individuals and businesses.

The Collections Process

The collections process typically begins when you fail to pay your taxes in full by the filing deadline or fail to respond to a bill from the IRS. Here are the main steps in the process:

1. IRS Notices

The first step is for the IRS to send you a series of letters and notices demanding payment of your outstanding tax liability, including penalties and interest. These ask you to pay the debt or set up an installment agreement.

2. Tax Liens

If you don’t respond to the IRS notices, the IRS can file a Notice of Federal Tax Lien, which publically registers the government’s claim against your current and future property. This makes it difficult to get credit or sell assets.

3. Levies and Garnishments

After sending more notices, the IRS can pursue levies and garnishments if you still don’t pay. A levy allows the IRS to seize and sell your property (e.g., your house, car, recreational vehicle) to collect the debt. Garnishments allow them to take money directly from your paycheck or bank account.

4. Suspend Credentials

For certain occupations, such as attorneys and pilots, the IRS can request that your federal credentials be suspended for failing to pay taxes.

5. Summons and Prosecution

In extreme cases, the IRS can summon you to appear and be questioned under oath about your finances. Failing to comply can even lead to criminal prosecution.

Your Options

During collections, you have options like setting up an installment agreement to pay over time, making an offer to settle the debt for less, or showing that you can’t pay and qualifying for temporary non-collection status. The most important thing is to promptly respond to IRS notices to avoid escalating enforcement actions.

The IRS collections process aims to compel payment through increasingly aggressive measures if you fail to resolve your tax debt. The best way to resolve the situation through less drastic means is to work proactively with the IRS as soon as you have a balance due.

If you need help resolving your tax debt, schedule a call with me today to learn about your options.