Dallas TX – Why Being in Currently Uncollectable Status with IRS Debt Might be the Perfect Time To File an Offer-In-Compromise

There are times when I have taxpayers come into our Richardson, TX tax office, who are experiencing difficult financial times, often through no fault of their own.  Perhaps they’ve had a death in the family, lost their jobs for an extended period of time, or have had medical issues which have put them in financial straits, and as a result, they have IRS debt.  Often, these taxpayers will qualify as Current Uncollectible with the IRS, since they do not have sufficient income to meet their allowable living expenses and do not have assets that the IRS has determined it can levy.

There are several positive consequences as a result of being categorized as Currently Uncollectible that include:

  • The IRS will not actively pursue the Taxpayer in Collections
  • As such, the IRS will not levy the assets of the taxpayer, and
  • The 10 Year Statute of Limitations, the amount of time available to the IRS to collect the tax debt, continues to elapse while in Currently Uncollectible Status.

In some situations, it may make sense to file an Offer-In-Compromise (OIC) when the taxpayer qualifies as Currently Uncollectible.  Some of the advantages include:

  • An Accepted Offer-In-Compromise is a permanent resolution to the tax debt and Currently Uncollectible Status is not. When the Taxpayer is in Currently Uncollectible Status, if the taxpayer’s situation changes, they may be required to make payments or face levy action.
  • Since an OIC is based on the combination of Net Available Income (Cash less allowable expenses) and assets, the same financial situation that qualifies the Taxpayer as Currently Uncollectible may qualify them for an OIC at an amount that makes sense for them to settle their debt.

There are some situations where it makes sense for a taxpayer to remain in Currently Uncollectible and not file an OIC.  Those include –

  • The taxpayer is very close to the expiration of the 10 year statute. For example, in three months, the statute will expire and the IRS can no longer collect.  It would not make sense to file an Offer-In-Compromise, since the debt will expire on its own.
  • There is virtually no chance of the Taxpayer’s financial situation changing. For example, they are permanently disabled.  Since there is little risk of falling back into IRS collection, it would not make sense to incur the costs of filing an Offer-In-Compromise.

Do You Need Help?

If you would like to file an Offer In Compromise, be categorized as Currently Uncollectible, or  have any other IRS Collection issue, we’d be happy to talk with you.  Please give me a call at (972) 821-1991 or email me at bob@jablonskyandassociates.