Getting Put on Uncollectible Status
Sometimes taxpayers come across unforeseen financial events and it puts them in a situation where they are
simply not able to pay the IRS the taxes that are owed. The IRS understands that this happens and has the
power to declare an individual uncollectible if they can prove to the IRS that the collection of the tax
would cause financial hardship. This is also called status 53. Once the IRS approves, then this
will temporarily stop collections. The IRS will follow up several months later to see the financial
situation has improved enough in order to start collections again. This status won’t solve your tax problem
but will buy you more time to deal with it.
How to be Declared Uncollectible by Proving Financial Hardship to IRS
The IRS declares individuals uncollectible on a case by case basis. They evaluate individuals to see if the
enforced collection of taxes from them would create economic hardship. In order to pursue this resolution,
you may be required to submit some IRS forms and lots of personal financial information to the IRS outlining
your financial situation.
Filing for Hardship with the IRS: Being Declared Uncollectible
If you truly cannot afford to pay your IRS
tax bill, you may qualify for hardship status. Hardship status applies to individuals, sole-proprietors,
partnerships, and limited liability companies (LLCs). Moreover, it is also called currently not
collectible (CNC) or status 53. Hardship status can stop collection activity for certain tax years where a
taxpayer has a liability, but the IRS does not grant this status lightly.
To apply, in most cases, you need to give the IRS detailed financial information. You have to convince
the IRS you cannot afford to pay and that forcible collection would cause severe financial hardship. There
are other reasons why the IRS grants CNC status.
In essence, it is forbearance by the IRS. Just like when receiving a deferment or forbearance with a
student loan, interest continues to accumulate. However, with the IRS, penalties also accumulate.
Working With an IRS Representative on Hardship Status
If you have been working with an IRS representative, you can ask the IRS to mark “status 53” on your file
or ask for currently not collectible status. Status 53 means the collector or IRS representative has filed
Form 53 (Report of Currently Not Collectible Taxes). The IRS files this form internally. Consequently, the
IRS may require you to share more information or complete more documents such as a Form 433-A, Form 433-F,
or 433-B.
However,
in some cases, if a collector knows your situation well, they may be willing to do this for you.
Applying for Currently Not Collectible Status
Usually, to get uncollectible status, individuals need to complete Form 433-F (Collection Information
Statement for Wage Earners and Self-Employed Individuals), and businesses need to complete Form 433-B
(Collection Information Statement for Businesses). In some cases, the IRS may request Form 433-A (Collection
Information Statement). It is a more extended version of Form 433-F. In some instances, if the
taxpayer owes less than $10,000, the IRS may not request the taxpayer complete a Collection Information
Statement. Generally, the taxpayer in these cases, is disabled, incarcerated, has limited or no sources of
income.
These forms request incredibly detailed information about your financial situation. The IRS uses this
information to determine your collection potential. In other words, the IRS decides if you can afford to
pay them based on financial information you provide to them using Form(s) 433. The IRS uses Collection
Financial Standards to assess how much you can pay them each month. To read more details about Collection
Financial Standards.
Information Required to Complete a Collection Information Statement
Here is some information you need to fill out these forms. Note that you may also have to provide copies
of these documents to the IRS:
-
Personal information (phone number, address, Social Security Numbers, age, details about the health of
dependents, living arrangements, etc.).
-
Employment information (name of employer, occupation, work phone number, pay stubs, how long employed,
etc.).
-
Other income (pensions, annuities, social security payments, child support, alimony, investment
income, etc.).
-
Bank and financial information (checking account statements, list of liquid assets, investment
accounts, credit card statements, insurance policies, etc.).
-
Information on any legal proceedings (for example, collection activities against you such as liens or
garnishments).
-
Three months worth of copies of monthly bills and expenses which can include:
- Food
- Housing (Rent, Mortgage, Taxes, etc.)
- Apparel and Services
- Transportation Costs
- Utility Costs
- Personal Care
- Medical Expenses
- If disabled, you need to show proof such as hospital bills or government records.
-
Copies of your most recent tax return(s) (IRS Form 1040, 1040A or 1040EZ). In many cases, if you have
unfiled tax returns, the IRS will ask you to file them first.
-
When taxpayers owe more than $100,000, the IRS may ask for motor vehicle records, credit reports, and
check courthouse records to see if the taxpayer has personal property or real property ownership.
The IRS looks at your assets and if there is no equity in them or if seizing them to pay your tax
liabilities creates a financial hardship, obtaining a hardship status is more likely. For example, if the
IRS takes your car, then you obviously would not have the ability to get to work.
Confirming CNC Status
Once the IRS confirms CNC status, they will send you letter, usually letter 4223, Case Closed –
Currently Not Collectible. Furthermore, IRS account transcripts will have similar language.
Proving financial hardship is not easy, but it is possible if you meet the requirements. Check with a
professional before trying to file for uncollectible status on your own. A licensed tax professional can
help you decide if declaring hardship is the best option for you.
One thing to keep in mind is that being classified as currently not collectible doesn’t solve your tax
debt, but it can buy you time to get back your feet. It can also serve as a great option if you do not
expect your income to rise in the future (e.g., you are retired). If your situation does not change
by the time the CSED(s) or collection statute expiration date arrives for a given year, the taxpayer will
no longer have to money owed for that year.
IRS Hardship: Frequently Asked Questions (FAQs)
What are other names for IRS hardship status?
There are many different names for IRS hardship, but they all mean the same thing. The different names
include IRS uncollectible status, status 53, currently not collectible, and CNC status.
Does a CNC or currently not collectible extend the statute of limitations on
IRS collections?
The statute of limitation (SOL) on collections is the date the IRS can no longer legally collect. If you
are
declared currently not collectible, that does not change the SOL. However, if you file bankruptcy, file
for an offer in compromise among other things, this “tolls” the statute of limitation on collection.
Remember, interest and penalties continue to accrue while a taxpayer has a CNC status.
What expenses does the IRS allow if you file for hardship status?
To determine if you qualify for hardship status, the IRS looks at your income, expenses, and assets.
The agency considers a certain amount of regular monthly costs. Mainly, if you are spending more than these amounts,
the IRS expects you to reduce your bills and pay down your tax debt. Otherwise, in some instances, you can ask for an exception.
National Standards: Food, Clothing & More (2019 for 1 person)
- $386 for food
- $88 for apparel and service
- $40 for housekeeping supplies
- $43 for personal care and services
- $17 for miscellaneous expenses
-
You can get more details from the IRS.gov website.
National Standards: Out of Pocket Health Care Expenses
- $52 for persons under 65 years old and $114 for person $65 and older
The national standards vary based on the number of people in your family. You can learn more here. The IRS uses local Collection Financial Standards for transportation costs, housing expenses, and utility bills.
Local Standards
Local standards include monthly allotments for housing, utilities, and transportation operating costs
by region. In other words, the IRS determines allowable expenses based on where you live in the
country. The IRS determines housing and utilities at the county level, whereas the IRS sets car
operation costs at the regional level (discussed in more detail in a question below).
What transportation costs does the IRS allow with hardship status?
For transportation costs, the IRS assumes that you spend $178 a month on public transportation, but if
you have a car, the agency uses different numbers. If you own a car and take public transport as
well, you may claim both expenses if you can prove them necessary.
Allowed ownership costs, set at the national level, are $497 for one car and $994 for two vehicles. On
top of that, you can also include operating costs based on where you live. For example, as of 2018, the
IRS permits taxpayers in New York $304 per vehicle in operating expenses (608 for two) but only $184 for
taxpayers in the Minneapolis-St. Paul region. Usually, the IRS allows one car per person. To learn more,
check out the IRS’s page on transportation allowances.
What are the IRS’s housing and utility allowances?
When determining what you need to spend on housing and utilities, the IRS uses different numbers based
on where you live. The IRS set at the county level, and they vary a lot.
For example, if you are a family of five living in Westchester County County, New York, the IRS expects
you to spend $4,256 per month on housing and utilities. In contrast, if your family of five is living in
St. Lucie County, Florida, the IRS permits $1,906 on housing and utilities.
Is there a specific form to file for IRS Hardship?
No, there is not a specific form to file for hardship. You need to work with the IRS directly or
leverage a tax professional to apply for uncollectible status. To be considered, you usually have to
fill out IRS
Form 433-F (standard
form for most taxpayers), Form
433-A (usually revenue officers request), or IRS Form 433-B (business).
These forms require detailed information about your assets, debts, monthly income and expenses.
If I am declared currently not collectible, do I ever have to pay the IRS?
Yes, you are still required to pay the IRS. Uncollectible status is temporary and generally applies for
each year you owe. The IRS checks your tax returns every two years to see if your situation changes. If
you remain uncollectible until the debt expires, you do not have to pay. Therefore, CNC status works for
taxpayers in retirement or who don’t expect their income to change drastically.
Are there other options I should consider before trying to be declared uncollectible?
Yes, you should consider other options before pursuing uncollectible status. CNC status or IRS hardship
usually comes with a tax lien. That is the IRS’s legal claim to your assets. It can appear on your
credit report and makes it very difficult to borrow money.
If you can afford to make a small payment, you may want to apply for an installment agreement
instead. Alternatively, you may look into an offer in compromise. That’s where you settle the tax
you owe for less. When in doubt, request a free consultation with a tax professional to get an idea as
to your best course of action.
