ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – WHAT IS “CURRENTLY NON-COLLECTIBLE STATUS?” HOW DO YOU GET IT?
By Robert S. Schriebman
Currently non-collectible status is a new term for what IRS collectors used to call “53 status.” It was called 53 status because IRS collectors (Revenue Officers) used Form 53 to make the determination that an account was not collectible at the current time. Then, as now, when you owe the IRS, you have 4 options:
- Pay in full if you have the money.
- Work out an installment payment arrangement.
- Offer in Compromise.
- An account not currently collectible – a hardship suspension.
The IRS has its accounts receivable just like a commercial enterprise in the private sector. In the Collection Division accounts receivable arise in several ways. A tax return may be filed without full payment. Additional taxes, penalties and interest can be generated by an examination or by recomputing the taxpayer’s returns. If the taxpayer’s check is not honored by his bank when presented for payment, a receivable will be noted on the IRS computer.
The IRS realizes that all receivables are not going to be paid. There will be some uncollectible accounts. An account may be suspended due to hardship and the inability of the taxpayer to pay. These matters generally involve lack of equity in assets, undue hardship, or lack income- collection sources. If a taxpayer has any assets or sources of income, which are subject to levy, an account may not be reported as currently non-collectible.
An IRS Revenue Officer (RO) does not want to interfere with a taxpayer’s ability to provide necessary living expenses. To that end, an RO takes the following factors into consideration in determining whether a taxpayer’s case constitutes undue hardship and is currently non-collectible:
- Family size
- Necessary living expenses according to latest releases published by the IRS and the Dept. of Labor.
- Income from all sources, both taxable and non-taxable including income of a non-liable spouse used for the necessary living expenses of the family.
- Anticipated increases or decreases in income.
- Asset equity – if the taxpayer has no equity or nil equity, this is a very strong deterrent to collection.
- Payment ability.
- The age and health of the taxpayer.
Important Things to Know
There are things you must know that are very important when considering whether you qualify for currently non-collectible status:
- As we will see in the Webb case below (Sherrie L. Webb v. Commissioner., TC Memo 2021-105, August 31,2021), in order to qualify you must submit the required supporting documentation to the RO. Failure to do so is not helpful!
- Interest continues to run, and is compounded daily on the suspended account.
- The IRS will want to review your financial position periodically to determine if hardship suspension should be continued.
- The suspension procedure neither extends nor terminates the collection statute of limitations.
The Webb Case
Sherrie Webb was not happy with the results of her Collection Due Process. Ms. Rego, the Settlement Officer, refused to give Sherrie currently non-collectible status. Sherrie refused to supply Ms. Rego with the required documentation necessary to prove that she could not pay the IRS. In addition, Sherrie insisted on making annual contributions to her section 401(k) account. Sherrie took the IRS to the US. Tax Court. The judge ruled against her and totally supported Ms. Rego’s position.
You can’t have your cake and eat it too, when it comes to a hardship suspension. The taxpayer has the burden of proof and the duty to supply the IRS with all information and documentation necessary to prove that taxes cannot be paid. Taxpayers must show the IRS that they have no available sources of income to pay delinquent taxes.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Web Site Article 594