Relief from Back Taxes When You Cannot Pay Your Tax Debt

Last updated on June 19, 2023

If you owed taxes and you did not file your tax return because you could not pay any amount of your tax bill, then you can resolve your back taxes through an IRS payment plan called Currently Not Collectible. Under this agreement, the IRS stops all collection actions and waits for the payment of tax debt till your financial condition has improved.

Back Taxes Relief under Currently Not Collectible

The IRS designed this agreement for taxpayers that do not have the financial strength to pay any amount of back taxes. The criteria for judging the financial condition of the applicant requesting the status of Currently Not Collectible is that the taxpayer must only have the financial resources to meet basic living needs, including food, shelter, clothes, and transportation.

If the IRS finds that the taxpayer can comfortably fulfill every basic living need after paying a partial amount in tax debt, it will not accept the application for Currently Not Collectible. Taxpayers that can pay a partial amount of their tax debt should seek resolution under tax debt reduction plans such as Offer in Compromise or Partial Payment Installment Agreement.

What Currently Not Collectible Achieves

After a taxpayer has qualified for Currently Not Collectible, the IRS stops all collection actions. The IRS will regularly review the financial condition of the taxpayer to check for improvement. If the IRS sees improvement, they resume collection action to recover the full or reduced amount of tax debt. The IRS always encourages closure of the tax debt case, and if they think that a reduced amount of tax debt is the most that they can hope to achieve within a reasonable period of time, they will probably reduce the tax debt and close the case.

If, on the other hand, the financial condition of the taxpayer does not improve, the IRS will have 10 years to collect back taxes. If after 10 years, the financial condition of the taxpayer has not changed, the IRS may close the case without collecting any amount of back taxes.

Though the statute of limitations of 10 years applies to most cases, but in some cases, the IRS can initiate collection actions for cases that are decades old. Therefore, it is best to achieve a closure than to wait for the statute of limitations to expire.

Even if taxpayers cannot pay any amount of their tax bill, they must file their tax return and pay the minimum amount that they can. That will help them to achieve a resolution later, as filing of all past tax returns is necessary to qualify for a tax debt payment plan. Taxpayers should consider using outside help to achieve back taxes relief if they feel unable to achieve a resolution themselves.