The tax professionals at Flat Fee Tax Service have helped countless taxpayers who have had their Social Security and Social Security Disability (SSDI) benefits seized by the IRS. The IRS, through the Federal Payment Levy Program (FPLP), can seize as little as 15% of your benefit check.
A taxpayer may have retired and now draws on their Social Security or may be unable to work due to disability and now receives Social Security Disability (SSDI). The IRS may have previously placed a financially struggling taxpayer in currently not collectible status (CNC) because they did not have enough income to pay an overdue income tax debt. Now that a taxpayer is drawing money from Social Security, do not be surprised to receive a notice from the IRS that the Internal Revenue Service is going to be taking part of the taxpayer’s check each month.
A taxpayer may have thought they were in Currently not Collectible status only to find out that their check is 15% short of the full benefit. Can the IRS really seize social security? Yes, the IRS can and will take at the minimum 15% unless steps are taken to stop, remove and release the IRS levy.
What is Currently not Collectible?
Currently not Collectible status (CNC) simply means that the IRS won’t try to collect taxes at the current time. Should a taxpayer be placed in Currently not Collectible status (CNC), a Federal Tax Lien will be filed. If your credit is important to you, this will be an issue. The income tax debt owed will continue to accrue penalties and interest. The IRS can rescind the taxpayer’s Currently not Collectible anytime that they choose without warning. To be placed in Currently not Collectible status, a taxpayer will have to show the IRS there is not enough income to pay the IRS and meet the taxpayer’s basic necessities. Most often, Currently not Collectible (CNC) will necessitate filling out a Form 433-F (Financial Asset Form). This IRS form requires a taxpayer to list all of their income, assets, and expenses. Use the IRS National Standards for personal/ food expenses and medical expenses without having to prove your actual expenses. A taxpayer will be limited to claiming the national standards on all expenses unless it is proven that a taxpayer has a special circumstance that makes their expenses higher. A taxpayer can find the National Standards on the IRS.gov website.
How does Currently not Collectible status effect how much income tax is owed?
The interest and penalties on your account continue to increase.
Can the IRS change a taxpayer’s status?
Yes, the IRS can change the taxpayer’s status at any time. The IRS will take a look at your status every twelve (12) to twenty-four (24) months or so. The IRS will also look at any change in income.
Can the IRS really take my social security or Social Security Disability (SSDI)?
The IRS can and will take a taxpayer’s social security retirement benefit or social security disability benefits once the IRS computer discovers that a taxpayer is receiving a government check. As a general rule, the IRS will limit what they take to 15% per the Federal Payment Levy Program (FPLP). The IRS should not take Supplemental Security Income (SSI) benefits. These benefits are considered public benefits and are usually assumed to be only enough to provide for basic necessities. Please note, the IRS can take more than 15% should a Revenue Officer issue a Manuel Levy.
Although the IRS is supposed to prevent certain very low-income social security retirement and social security disability recipients from being placed in the federal payment levy program, we all know that is a rule that is often broken. This screening program is not full proof so taxpayers still may have to submit a 433-F to be put into currently not collectible status.
What if a taxpayer does not believe they owe the IRS the past due income taxes?
If a taxpayer has never received a notice of levy before, a request for a Collection Due Process hearing (CDP) is an option. A Collection Due Process (CDP) hearing will allow a financially struggling taxpayer to present evidence that the IRS should not levy on Social Security benefits. A taxpayer could also challenge the income tax debt if the taxpayer has not had a chance to challenge it before. A taxpayer might not have been able to challenge the income tax debt if the IRS did not issue the right notice or mailed the notice to the wrong place.
If a taxpayer received the notice but decided not to respond, the taxpayer cannot challenge the income tax debt in a CDP hearing. A taxpayer might be able to ask for an audit reconsideration. In an audit reconsideration, the taxpayer will tell the IRS why their decision was wrong and provide them with any evidence that will help the IRS change their mind.
If the taxpayer is Currently not Collectible should they do an Offer in Compromise?
Now we are talking about an actual permanent solution to the financially struggling taxpayer’s income tax problem. If the IRS has already declared the taxpayer to be unable to pay the overdue income tax debt, why not take the extra step and retire the income tax debt altogether through an IRS settlement? If a taxpayer has no assets and is relying on Social Security benefits to live on, it would behoove the taxpayer to get rid of the tax debt. Many of the same IRS rules that govern being Currently not Collectible work for the Offer in Compromise program.
During the Offer in Compromise process, the IRS must leave the taxpayer alone. That means no levies. No enforcement actions. If you have no assets and only have your Social Security, your IRS settlement should be very, very small. At the end of the Offer in Compromise process, the taxpayer will have no IRS income tax liens.
YOU WILL RECEIVE THE FRESH START THAT YOU NEED
When we receive a call from a taxpayer who is or was declared to be Currently not Collectible, we explain the settlement program this way: If you were running a marathon, would you stop running when you were 200 yards from the finish line? Of course not. Finish the race. Settle with the IRS for less.
Where can a taxpayer get IRS help if they need it?
You can receive expert IRS tax representation at Flat Fee Tax Service We are “America’s Best & Most Affordable IRS Tax Relief Team.”
FLAT FEE TAX SERVICE:
1. Guided by our Christian Values is one reason why we do not have client complaints.
2. Accredited by the Better Business Bureau. A Plus Rating. Read our BBB testimonials for yourself.
3. Experienced IRS Tax Attorneys work directly with the troubled taxpayer.
What are the options for a taxpayer who owes the IRS for back Income taxes but is unable to pay? What are your options if the taxpayer is unable to pay the past due to income tax because you have just enough money to support yourself and your family? Once a taxpayer is declared by the IRS to be Currently not Collectible (IRS Hardship), the IRS will not take/seize your property. The IRS will not take your paycheck (IRS wage garnishment) or wipe out your bank account (IRS Bank Levy) while the taxpayer is in IRS Hardship (Currently not Collectible). IRS Hardship will not remove the back income taxes that owed by a taxpayer. The financially struggling taxpayer will still owe back income taxes. Every year the IRS will mail out a reminder letter regarding the income taxes owed.
IRS Hardship does not stop IRS penalties and interest to accrue. The IRS will continue to charge penalties and interest and the IRS will file a Federal Tax Lien.
IRS Hardship Status – How Long Will it Last?
IRS Hardship (Currently not Collectible) status could last up to 10 years. Generally, the IRS has 10 years to collect overdue income taxes. After 10 years, the IRS is supposed to remove the back taxes. For example, if a taxpayer filed their 2009 tax return on time, back taxes for 2009 will be owed. The IRS can collect the back taxes until 2020. If the 2009 taxes are in IRS Hardship status, the IRS will leave the taxpayer alone. A taxpayer may be able to stay in IRS Hardship status for the next 10 years. After 2020, the IRS will remove 2009 taxes.
The IRS will review a taxpayer’s income situation approximately once every two years. If the taxpayer’s income has increased, the IRS may take the taxpayer out of IRS Hardship (Currently not Collectible) status. The IRS believes the delinquent taxpayer is better able to support themselves and pay the back income tax debt.
If A Taxpayer Has New IRS Back Income Taxes
What if a taxpayer expects to owe new taxes for this year? The back income taxes that are owed are in IRS Hardship status. Will the new taxes be automatically included in the IRS Hardship status? The answer is no. Every tax year is treated separately. For example, you could owe back taxes for 2005 – 2008, and new taxes for 2010. 2005 – 2008 are in IRS Hardship status but 2010 is not. The IRS can pursue the taxpayer for the new 2010 taxes but not 2005 – 2008 back taxes.
If you are in this situation, the tax professionals at Flat Fee Tax Service recommend that you pursue an IRS settlement (Offer in Compromise). This should not affect your IRS Hardship status. If the IRS has declared that you are unable to pay them for the income taxes that you owe, then it’s a very important step toward having your entire income tax debt settled.
If the struggling taxpayer is unable to pay off the new taxes, the taxpayer can request to put the new tax debt in IRS Hardship status. The taxpayer can continue to be Currently not Collectible but it would be so much better to have all of the income tax debt wiped out through the Offer in Compromise program.
IRS Hardship Tax Forms
The IRS will request financial information to show that the taxpayer is an IRS Hardship.
IRS Form 433-A or IRS Form433-F – Used for individuals or self-employed requesting IRS Hardship Status.
IRS Form433-B – Used for C Corporations, S Corporations, and Partnerships requesting IRS Hardship Status.
Difference Between IRS Hardship and IRS Settlement
An IRS settlement submitted through the Offer in Compromise program is a more complete solution compared to IRS Hardship. An IRS Settlement is an agreement between the IRS and the delinquent taxpayer to pay less than what is owed. The IRS Settlement process usually takes approximately 10 months but can take as little as 6 months and as much as 24 months. After the IRS settlement agreement is finalized, the delinquent taxpayer will be done. The taxpayer will no longer owe back income taxes.
There is a huge difference between being in IRS Hardship and proceeding with an Offer in Compromise settlement. During the Offer in Compromise process, the IRS must leave taxpayer alone. The IRS may or may not leave the taxpayer alone while in IRS Hardship status. Also, while in IRS Hardship, the delinquent taxpayer could be dealing with their past due to income taxes for the next 10 years. Most people are uncomfortable with this. A taxpayer should be uncomfortable with this. A taxpayer may not like the thought of owing back taxes even though the IRS is not coming after the money.
To Know More About the IRS Settlement Process Read This: IRS Settlement
IRS Hardship may be a better option if a taxpayer is not qualified for an IRS Settlement. But, know this, if the IRS has already declared that a taxpayer is unable to pay the overdue income taxes, it is only a “hop, skip and jump” to wiping out the income tax debt altogether.
The IRS income tax relief team at Flat Fee Tax Service will have a taxpayer placed into IRS Hardship / Currently not Collectible status if the taxpayer is unable to pay the back income tax debt and is not qualified for an Offer in Compromise settlement. The financially struggling taxpayer will still owe the back taxes but the IRS will not pursue the taxpayer. Our clients are able to take a deep breath and go about their normal everyday life. A taxpayer may stay in IRS Hardship status for the next 10 years. After 10 years, the IRS will remove the back taxes.
Flat Fee Tax Service has provided many taxpayers in the San Antonio, Texas area struggling with an IRS tax debt for more than a decade. Should it look like it’ll be difficult for you, a financially struggling taxpayer, to pay all the federal income taxes you owe, here are your options, along with some key facts you need to know.
There are two distinct aspects involved in paying taxes: filing your return and paying it. Not filing your return on time and not paying what you owe come with different ramifications. It may surprise you to know that if you don’t file your return on time, even if you can’t pay all that you owe by April 15, you will be facing the largest penalty.
Failure to file your tax returns on time and not paying all of the income tax that you owe by the due date will cost you a monthly penalty of 5 percent of your tax bill plus interest. However, if you do file on time, or request an extension by midnight on April 15, the penalty drops to half of 1 percent plus interest. So, at the very least, file your income tax return or request an extension by April 15. Paying as much as you can by the filing deadline will lower your costs as well since the late payment penalty is based on a percentage of what you haven’t paid.
A Taxpayer Has Several Options
A distressed, financially struggling taxpayer will have to come to an agreement on how to pay the income tax owed. Don’t expect this to be “forgotten.” The picture of Uncle Sam may look friendly, but the IRS has some enforcement/collection tactics available to them that other creditors do not. The IRS could be garnishing your wages, taking money from your bank accounts, or slapping a lien on your property.
Don’t let things get to “go haywire.” Instead, explore the following tax relief options:
Short-term extension: If you think you can pay all of the income tax that you owe within 120 days of April 15, a taxpayer can apply online for an installment agreement You can also call the IRS at 800-829-1040 (maybe the IRS will answer the phone – probably won’t) for more information. There is no up-front fee for a short-term payment extension. However, a late-pay penalty (half of 1 percent of the balance owed per month) and interest will be charged. Still, that should amount to less than what you’d be charged with a longer-term payment agreement.
Long-term extension: If you can’t pay the income tax you owe within 120 days, you may be eligible to pay your income tax bill in monthly installments over the course of up to 72 months. There is a fee of $120 to establish an installment agreement, or $52 if you agree to have your payments automatically deducted from your bank account. While you’ll still have to pay interest, if you filed your return on time, the monthly late-pay penalty will be half of 1 percent of what you owe. If you owe the IRS $50,000 or less (including penalties and interest), you should be able to set up the online payment agreement. If you owe more than $50,000, you’ll need to complete IRS Form 9465 and supply the IRS with a Full Financial (IRS Form 433-F). Also, should a taxpayer owe $50,000 or more, the IRS will file a Tax Lien regardless whether you have an Installment Agreement or not.
Temporary delay: If your circumstances are such that you can’t pay any of what you owe, and you’re not sure when you’ll be able to, the IRS may temporarily delay enforcement/collection until your financial condition improves. However, your income tax debt will grow because penalties and interest will accrue until you come up with the full amount. During the temporary delay, the IRS will continue to review your ability to pay. The government may also place a tax lien on real estate or other property you own. Contact the IRS at 1-800-829-1040 (maybe the IRS will pick up the phone) for more information about requesting a temporary delay.
Offer in Compromise: To be eligible and qualified for an IRS settlement through the Offer in compromise program, you must owe the IRS $10,000 or more. If you can’t afford an installment agreement, you could offer to settle your tax debt in one lump sum (you can also make monthly installments on the settlement) totaling less than what you owe. Whether you’ll qualify depends, in part, on your income, expenses, assets and the IRS’ assessment of your ability to pay. As of the date of this writing, the IRS has been accepting 42% of the settlement offers submitted. The clients at Flat Fee Tax Service have had a 95% success rate. There is also a non-refundable $186 application fee, and most applicants have to make an up-front, non-refundable partial payment when they apply. So, make sure you feel confident about meeting the requirements. You’ll need to demonstrate that situation is such that you will never be able to pay back everything you owe.
Currently not Collectible: If a financially struggling taxpayer cannot pay their income tax debt and owes any amount to the IRS and cannot pay, the taxpayer may be declared “Currently not Collectible.” The IRS will file a Tax Lien but will cease all active enforcement action and the Statute of Limitations will continue to run out on your income tax debt.
The correct term for “Currently Uncollectible” is Currently not Collectable (IRS Hardship) is a method for delaying payment (possibly eliminating payment) of your IRS Tax Debt. The tax professionals at Flat Fee Tax Service are led by an IRS Tax Attorney. Together, they will work to convince the IRS that you have no way of paying your IRS Tax debt at this time.
We, at Flat Fee Tax Service, as the nationwide leader in stopping an IRS Levy / Tax Levy, usually hear from our clients when they have had a Tax Levy executed by the IRS.
Many of our clients are on Social Security or Social Security Disability (SSDI) and do not have the ability to survive an IRS Levy / Tax Levy and may very well be a candidate to be placed in a status of Currently Uncollectible (IRS Hardship) by the IRS. You do not have to be on Social Security or be on Social Security Disability (SSDI) to be designated as Currently Uncollectible.
The IRS has a complex method of calculating 3 items:
1. Gross Income
2. Allowable Expenses
When you put those 3 items together in the IRS formula, you come up with a taxpayers ability to pay their back tax. Of course, the human element is always a part of this equation. The IRS Revenue Officer handling the Currently Uncollectible petition and the Tax Advocate for the taxpayer play a big part in the decision.
Some of the Allowable Expenses considered for the Currently Uncollectible program are:
a. Food & Clothing
c. Car Payment
d. Car Allowance
c. Medical Expenses (Insurance, prescriptions, etc)
d. Child Support
e. Rent / Mortgage
There are limits on the amounts that the IRS will allow. An experienced Tax Professional will help in the negotiation with the IRS.
The IRS will consider you “currently not collectible” (IRS Hardship) and this status will usually be for a period of one year (twelve months) to 18 months. At the end of the Currently Uncollectible period, you, the taxpayer, will need to show the IRS that your economic situation has not changed. As long as you enjoy the status of Currently Uncollectible with the IRS, you will not be expected to pay any of the IRS tax debt. Your statutory period (IRS Statute of Limitations) does not freeze/stop. The Statute of Limitations continues to decrease as usual.
An important note to being placed in the Currently Uncollectible status by the IRS is this:
If the IRS admits that you cannot pay your back tax, doesn’t it make sense to follow up your Currently Uncollectible status with an Offer in Compromise petition and clean up your back tax once and for all? We believe that if you are Currently Uncollectible that you should continue and clean up your back debt altogether.
You should consult with a Tax Professional. If you would like to speak to us, the team at Flat Fee Tax Service welcomes your call.