IRS Uncollectible Status

Many tax resolution companies go above and beyond in their attempts to attract new clients. While there is nothing wrong in marketing your business, sometimes these attempts cross the line of what is considered to be ethical.

All of us heard misleading statements made by some tax resolution companies, with phrases such as "settle for pennies on the dollar", referring to the IRS program called Offer in Compromise –  promising their potential clients to settle their tax debt for much less that they really owe. The Offer in Compromise program really exists, but few taxpayers qualify for it. However, this is something that a company that promises to settle your debt for a penny will never tell you until you pay them money.

Another advertisement that has started appearing in media is even more misleading. It promises delinquent taxpayers to make sure that they "will not pay anything to the IRS" for as long as they are on a certain program. The program that these advertisements refer to is called CNC, Currently Uncollectible Status.

Currently Uncollectible Status, or Status 53, is one of the official ways to temporary resolve your tax liability with the IRS. It is not a permanent solution, because the IRS reserves the right to check on your financial situation every year or two to make a decision on whether or not you are qualified for this status for the next period of time. If you do qualify, you indeed do not have to make any payments to the IRS until your financial situation improves, assuming that you file all returns on time and stay current with your new tax obligations.

However, Currently Uncollectible Status does not make your tax debt disappear until it hits Collection Status Expiration Date. In addition, your penalties and interest continue to accrue. In other words, unless you are sure that you are not going to make more money in future, you can find yourself owing the IRS tons of money when your Uncollectible Status expires.

What makes those promises to get you on the Currently Uncollectible Status not ethical is the fact that people who qualify for this status usually do not have any funds to pay to a tax resolution company. If you do not have any equity in assets and your income can barely cover your expenses, you do not need a representative to get your case on CNC.

You can do it yourself by calling the IRS. In some cases you will be required to complete a financial statement, Form 433F, and provide proof of your income and expenses. A few things you need to know about this statement is that the IRS uses National Standards for some expenses, such as food, vehicle ownership and operation, housing and utilities and out-of-pocket medical payments. These standards can be found on the IRS website.

It does not mean that you cannot claim higher expenses than the IRS is willing to consider, but if your expenses are higher than National Standards, you should provide documents to prove it. For example, having a mortgage that is higher than average mortgage in your County of residence does not mean that the IRS will deny your request for CNC. However, a good idea in this case would be to provide proof that you cannot sell or refinance your house at this time.

This guest post was provided by Ian Jackson, a tax professional who writes for one of the premier tax resolution companies. Find out more at 20/20 Tax Debt Help.


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