An uncollectable tax debt means the IRS has determined a taxpayer does not have the financial ability to pay his balance. If you owe the IRS, but do not have sufficient means to make payments or fully pay your balance, you may qualify for this status. You must formally request that your case be put in uncollectable for the IRS to stop collection activity on your account.
What is Uncollectable Status?
Uncollectable status is a formal status to resolve your liability with the IRS. Once the IRS approves your request, a code is placed on each period you owe tax, which prevents IRS computers from issuing levies, filing liens or making aggressive attempts to collect your back taxes. During the time your account is in this status, the statute for collection continues to run. Some taxpayers have remained in uncollectable status for the duration of the collection statute. In most cases, the IRS has 10 years from the date your tax is assessed to collect what you owe. The IRS may also refer to this status as currently not collectible, Status 53, or CNC.
Claim Inability to Pay Taxes on Form 433-A
When you request uncollectable status for your tax account, you must complete IRS Form 433-A, Collection Statement for Individuals, and provide it to the IRS. This is a financial statement that lists your assets and liabilities, as well as your monthly income and expenses. If your monthly expenses exceed your monthly income, you may be eligible for uncollectable status.
Evidence in Support of the Claim
In addition to Form 433-A, you must provide documents that support the information you claim on the form. Essentially, for every item you claim, you must provide proof that the item is real. Examples of documents you must provide include the past three months of your pay stubs; the past three months of your bank statements; a current lending statement for any assets you make payments on, such as your home or vehicle; proof of utility expenses; and proof of insurance expenses. If you have other monthly obligations for credit cards or student loans, you must provide proof of those expenses as well.
Refunds and Credits
During the time your account is in uncollectable status, any refunds or special credits granted by the IRS are applied to your existing balances, even though other collection efforts are suspended. Examples of special credits that may be granted include stimulus payments or any other credit granted to the majority of taxpayers. Refunds from your tax returns are applied to what you owe until your balance is paid or the collection statute on all the tax periods you owe has expired.