Uncollectible Status
When a taxpayer owes a lot of money and has no way to currently pay it- or it would a hardship to pay it, it might be possible for their balance due to be put in uncollectible status. (Might is the key word here--no promises).
I have had a few taxpayers who qualified for non-collectoble status (forms filed for them by my local LITC). Each case was different:
To learn more about current uncollectible status rules visit https://www.irs.gov/irm/part5/irm_05-016-001r
Form 443-F Collection Information Form https://www.irs.gov/pub/irs-pdf/f433f.pdf
Collection financial standards are used to help determine a taxpayer's ability to pay a delinquent tax liability. Allowable living expenses include those expenses that meet the necessary expense test. The necessary expense test is defined as expenses that are necessary to provide for a taxpayer's (and his or her family's) health and welfare and/or production of income.
National standards for food, clothing and other items apply nationwide. Taxpayers are allowed the total National Standards amount monthly for their family size, without questioning the amount actually spent.** per instuctions you do not need to enter what was actually spent if less than the IRS allowable standards.
National standards have also been established for minimum allowances for out-of-pocket health care expenses. Taxpayers and their dependents are allowed the standard amount monthly on a per person basis, without questioning the amount actually spent. ** per instuctions you do not need to enter what was actually spent if less than the IRS allowable standards.
Maximum allowances for monthly housing and utilities and transportation, known as the local standards, vary by location. In most cases, the taxpayer is allowed the amount actually spent, or the local standard, whichever is less. Enter actual and standard -- they will use the lesser of the two.
Notes:
May 13 2025--I helped a different taxpayer complete Form 433F-- waiting to see what LITC says are next steps--we will see how this plays out... fingers crossed
I have had a few taxpayers who qualified for non-collectoble status (forms filed for them by my local LITC). Each case was different:
- One taxpayer-- won a ton of money in another state -- they withheld state taxes but not federal. She did not file a tax return with the IRS that year. In fact, she hadn't filed in many years as her income was only Social Security income. This had happened about 3 or 4 years before the IRS mailed her a love letter and directed her to my office to file the missing tax return for that year. When her return was completed, she owed over $40K. I had asked her why she did not file with the IRS--she said she felt she didn't deserve the money and she gave all the money away. Her only income is Social Security--I connectedher with our local LITC. It took a while, but she was able to get approved for uncollectible status -- add in penalties and late fees --and her balance is over $80K. She will have the balance on her account-- she will have to provide proof of income periodically for the next few years, and they will put lien on her house until the agreement is over-but after a certain period of time, the debt would fall off.
- A couple migrant farmers were taken advantage of by a preparer. They had a balance due and paid the preparer, the returns were never filed, and some other stuff happened. but the LITC was able to get the tax for that year put in uncollectible status. I dont know all the details but that was a huge relief for them.
To learn more about current uncollectible status rules visit https://www.irs.gov/irm/part5/irm_05-016-001r
Form 443-F Collection Information Form https://www.irs.gov/pub/irs-pdf/f433f.pdf
Collection financial standards are used to help determine a taxpayer's ability to pay a delinquent tax liability. Allowable living expenses include those expenses that meet the necessary expense test. The necessary expense test is defined as expenses that are necessary to provide for a taxpayer's (and his or her family's) health and welfare and/or production of income.
National standards for food, clothing and other items apply nationwide. Taxpayers are allowed the total National Standards amount monthly for their family size, without questioning the amount actually spent.** per instuctions you do not need to enter what was actually spent if less than the IRS allowable standards.
National standards have also been established for minimum allowances for out-of-pocket health care expenses. Taxpayers and their dependents are allowed the standard amount monthly on a per person basis, without questioning the amount actually spent. ** per instuctions you do not need to enter what was actually spent if less than the IRS allowable standards.
Maximum allowances for monthly housing and utilities and transportation, known as the local standards, vary by location. In most cases, the taxpayer is allowed the amount actually spent, or the local standard, whichever is less. Enter actual and standard -- they will use the lesser of the two.
Notes:
- Lien: In general, a Notice of Federal Tax Lien (NFTL) should be filed on accounts being reported CNC when the aggregate unpaid balance of assessments equals or exceeds $10,000.00.
- Conduct a compliance check and document the results in the case history in circumstances when the taxpayer is contacted
- All open filing requirements or Delinquent Return (Del Ret) modules must generally be resolved and closed appropriately when reporting an account CNC
May 13 2025--I helped a different taxpayer complete Form 433F-- waiting to see what LITC says are next steps--we will see how this plays out... fingers crossed