Uncollectible Status

If you have settled a number of credit card debts and are still struggling financially, you may have a hard time paying the taxes on the settled debts. In this case, you may fall into uncollectible status.

The “uncollectible” tax account is also known as an “undue hardship” case. In order to qualify for this classification, you must have very little, if any, assets that can be subjected to a tax levy. You also must have no income beyond that needed to cover your bare living expenses.

The “uncollectible” tax status is obtained as follows:

• You notify the IRS you are unable to pay your unpaid tax bill, giving an explanation as to why you are unable to pay.
• The IRS reviewer will prepare a Form 53. This form will temporarily inactivate any collection activities against you.
• Interest and any taxes will still be owing during this time.
• The IRS will periodically re-evaluate your financial status. This usually occurs yearly.
• When the IRS requests it, you will need to complete a new Financial Statement (Form 433A).

Having your unpaid tax bill classified as an “uncollectible account” is a good way to reduce IRS debt. It is not an easy process, though. You will have to disclose quite a bit of your personal financial information, monthly expenses and income, and be prepared to share some history of your bank accounts.