If you owe back taxes to the IRS you may be wondering what your possible settlement options are. This may be particularly true if you're barely making enough money to cover your necessary living expenses. The IRS does have a status called "Currently Not Collectible" that is reserved for taxpayers who owe tax debt but are financially unable to repay the debt for a time. Qualifying for this designation is a bit complex but may provide some short-term tax relief for those who are struggling to make ends meet.

What is the Not Collectible Status?

The designation of "uncollectible" is used only for taxpayers who legitimately do not earn enough income or those who have excessive expenses that prevent them from settling their account with the IRS. Despite the possible reprieve individuals who receive this status still owe their tax debt and continue to accrue interest on that debt but they are given a temporary delay on their repayment arrangements. This status is not intended to provide long-term tax relief or resolution but to put the repayment on hold until the taxpayer's financial situation improves.

How the Not Collectible Status Works

Typically, the IRS requires the "not collectible" taxpayer to submit a report of his or her total income, expenses and assets each year. This annual report is analyzed to see if the financial situation has gotten better. If so, the agency will reinstate the payment arrangement and proceed with typical repayment methods. Since the statute of limitations on tax debt expires at 10 years some taxpayers have had their accounts declared temporarily "not collectible" and then been able to absolve their entire debt because the financial hardship continued for the entire 10-year window.

Applying for a Not Collectible Designation

So, how can a taxpayer get the "not collectible" designation? The first step is filing IRS Form 433-A or IRS Form 433-F "Collection Information Statement" which requires the taxpayer to disclose all forms of income and assets in possession at the time the form is completed. If your assets are not valuable enough to pay the debt through liquidation then the IRS may well decide that your account is currently "not collectible" and halt all efforts to collect for some time.

Taxpayers who struggle with their basic needs due to low income or few assets may be able to get a "not collectible" designation that could help them get a break from repaying the IRS. To learn more about qualifying for this designation some individuals may need the assistance of a qualified tax specialist.