Case Study: Put IRS Collectors on Hold

Case Study: How to put IRS Collection ‘on hold’ due to Financial Hardship

Many taxpayers fall behind with the IRS through no fault of their own. Life’s hit them with true financial hardship

Through a job loss, or serious illness — or work injury with a subsequent loss of income — they’re having trouble meeting basic financial needs, much less have money left over at the end of the month to pay their IRS debt

Did you know you can put IRS collectors on hold when you’re experiencing financial hardship?

A Case Study

I have been representing a taxpayer in Georgia recently, who we’ll call “Steve”.

Steve’s?case is now closed with the IRS, placed in “Currently Not Collectible” status

He now makes $0 monthly payments on his $24,506 tax debt.

The debt goes back over 7 years, and covers balances due on his 2014 through 2019 tax returns.

The IRS has agreed to take no Collection enforcement action, send no “nasty-grams”, no IRS letters, no bank levies, no wage garnishments.

So What do you mean by “Financial Hardship” ?

First off, please recognize the IRS may work from a different definition of “financial hardship” than you do.

For example, you may be in real estate, or construction, and you legitimately need a reliable, durable pickup or SUV to perform your work.

And you may be having difficulty keeping up with payments on your $65,000 2021 Ford F150.

But that doesn’t fit the IRS concept of financial hardship

The IRS compares your monthly income and living costs with national and local standard living expenses, using data provided by the Bureau of Labor Statistics

For example, reasonable housing costs in Northern Virginia are going to be quite different from those in North Carolina. The standards take these differences into account.

Now, why would the IRS agree to this?

The basic issue is, you’ve got income every month and you’ve got living costs every month. But after paying for basic living costs to maintain the health and well-being of your family or household — do you have money left over to pay your tax debt?

If not — the IRS will consider your account uncollectible

In our case, my client Steve was working in the lumber industry in Georgia and suffered a back injury. He had several surgeries then we went back to work.

He couldn’t physically perform the same work, but he’s a hard worker, and so his employer offered him a different position, at lower pay.

How do you document that you can’t afford to make tax payments?

I documented Steve’s income every month via paystubs and prior tax returns, and on the other side listed his monthly expenses by category. I pulled together three months of bank statements and major bills for food clothing utilities healthcare transportation and so on.

We verified his monthly living costs were well within the limits prescribed by local and national IRS Financial Collection standards

At the end of the month he was $304.43 short. Meaning his monthly income, minus his regular living costs — which were reasonable and within IRS standards — was not enough to meet his basic expenses, much less have anything additional left over to pay towards his $24,000 tax debt

So we got a letter from the IRS dated Nov 2, 2021, stating:

“Case closed — currently not collectible. We temporarily closed your collection case because we determined that you can’t pay the money you owe at this time.”

What’s next?

Steve must continue to file all future tax returns and pay any amounts he owes on time.

And if his financial position improves in the future they may reopen the case and resume collection activities.

However, given his lower income, and existing expenses, it’s doubtful things are going to change much in the next three or four years.

At the same time keep in mind this debt started on a 2014 return.

There’s only a ten-year period in which the IRS may collect on a tax debt. After 10 years the statute of limitations runs out, and the IRS can a large collect.

Meaning in another three years or so some of this debt will expire anyway

Obtaining Currently Not Collectible status makes tremendous sense now for Steve.

But longer term, it may even result in Steve’s never paying the tax debt from the prior years due to ongoing financial hardship

So it’s an excellent solution for Steve.

How do you qualify for Currently Not Collectible status?

It does take significant financial documentation and a knowledge of how to work with in the IRS collection process to gain CNC status and put the IRS Collection division on hold.

So I really recommend having a professional help you. Someone who’s had success resolving a variety of IRS tax debt problems, knows the IRS collections system, and can determine the best option for you and your situation.

If you have questions, or need help like Steve did, please reach out to me.?I’ve been helping taxpayers find resolution to tax debt problems for several years, and I’m here to help you.

Contact me at https://bit.ly/ContactAnchorman