If you are struggling to pay your tax dues (even after making installment payment arrangements), you can consider applying to the IRS for “currently non-collectible” status. Having “Currently Non-collectible” status means that you have no ability to pay your tax debts at present. The IRS can declare a taxpayer “currently non-collectible,” if it receives evidence that a taxpayer genuinely has no ability to pay. Click here to read or watch more IRS Help resources.
Once you are granted currently non-collectible status, any collection activities, like tax levies, are stopped. Likewise, the IRS will release any levies and garnishments that have been issued against you. This is known as Status 53. However, this is not going to be permanent (obviously). The IRS will not require any payments from you for now until your financial situation improves.
By law, you are guaranteed to remain in this status for at least one year. Once you are placed into this status, the IRS will monitor your tax return filings each year to watch for an increase in income. If your income increases, the IRS will remove this status from you and ask you to complete a new financial statement to determine whether or not you can then afford to make monthly installment payments. But if you do not have significant changes in your income even after one year, then you may remain in this status. There are cases when taxpayers are in currently non-collectible status even until the statute of limitations has expired and as a result their tax debt is forgiven. But bear in mind, the statute of limitation is generally 10 long years. And it may be extended by certain circumstances.
To provide the IRS with this evidence you have to fill up IRS Form 433-F, Collection Information Statement. You can apply for “currently non-collectible” status by submitting Form 433-F to an IRS Revenue Officer or the IRS Automated Collection System unit. You will also be required to submit a financial statement that details your monthly income and expenses, as well as what assets you have. When analyzing your income and expenses, you will need to prove to the IRS that after paying all of your necessary living expenses there is no money left over that could be used to make a monthly payment.
Additionally, you will have to prove to them that there are no assets that could be liquidated or sold to make a lump-sum payment to the IRS. This even includes your home. Although your primary residence is not required to be sold to pay for taxes, you can refinance it. To have currently non-collectible status, you have to prove that you have tried refinancing your home but was rejected.
Finally, bear in mind that the downside to having currently non-collectible status is that your tax debt grows because of penalties and interest that will be added to your debt while you’re in not collectible status.