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HOW DOES IRS’ STATUS KNOWN AS CURRENTLY NOT COLLECTIBLE RELATE TO OFFER IN COMPROMISE?

Many people come to me and tell me that the IRS placed them in “Currently Not Collectible” status or it is sometimes also referred to as “Hardship Status.”

Oftentimes they are quite happy about that because they think the IRS is going to leave them alone. My standard response to them is that the good news is, yes, the IRS will leave you alone but it is only temporary. They will eventually take you out of Currently Not Collectible and the additional bad news is that for the period of time you are in Currently Not Collectible status they continue to add penalties and interest to your tax debt.

If the IRS has placed you in Currently Not Collectible status or Hardship Status (the terms mean the same thing), if you are smart, you will go see a tax professional because now is the time for you to settle your debt with the IRS. Here’s why:

When the IRS places you in Currently Not Collectible status, they have made a determination that they’ve looked at your financial situation and you do not have the ability to pay them anything. What they don’t usually tell you, is that makes you an ideal candidate for an Offer in Compromise. People are familiar with the term “Offer in Compromise.” In simplest terms, it means the IRS will consider settling your tax debt for less than you owe. It is not based on magic; it’s based on your “ability to pay” them. When someone calls me and says the IRS put them in Hardship status then I know they are going to qualify for a settlement or an Offer in Compromise, because the IRS has already looked at their financial situation and determined that they don’t have the ability to pay.

At this point, you might say, “Well why doesn’t the IRS help me do an Offer in Compromise?” I could talk about that for a long time, but I am often reminded of the old beer commercial that said, “Why ask why?” I don’t mean to be disrespectful, but the IRS just doesn’t do that. I believe it’s because they just don’t have employees who fit that job description. Mostly, the IRS people are hired to go out and get money from delinquent taxpayers. They don’t have anybody who is willing to sit down with you and analyze your financial situation, analyze your tax records, analyze all the different factors that come into play and settle with the IRS.

They do have professionals who spend all day every day reviewing Offers in Compromise and attempting to settle with taxpayers. So it is up to you to pull the trigger. You have to either prepare your own Offer in Compromise or hire someone to do it for you. I would not recommend doing it on your own. There are too many pitfalls. It would be like trying to build a house for the first time and expecting to be able to do it all as well as an experienced house builder. There are just too many pieces and moving parts.

If the IRS has placed you into Hardship status or Currently Not Collectible status, they are telling you, perhaps unintentionally, that you qualify for an Offer in Compromise. Qualifying is the first step. The second and more important step is how much they would be willing accept to settle with you. You have to make a very specific proposal to them – an exact amount over a specific period of time. Keep in mind the whole idea behind Offer in Compromise is that the IRS will settle with you if you don’t have the ability to pay them. By putting you into Hardship status, they have acknowledged that you don’t have that ability.

Now the question is how much do you need to offer them? Len Stauffenger limits his practice to helping taxpayers who have IRS debt.