Currently Not Collectible status is used by the IRS to refer to an individual who is unable to pay their taxes due to financial difficulties. Currently Not Collectible status refers to an assumed temporary situation; therefore it does not mean that your debt to the IRS is forgotten about. What it means is that the IRS will not issue you levies or make any attempts to collect the taxes from you until you are able to pay.
Currently Not Collectible status is issued when it is deemed that one cannot pay their debts, their assets are not valuable enough and/or issuing levies would cause what is referred to as “economic hardship”. Economic hardship is stated as being a condition where living expenses cannot be met. Currently Not Collectible status means the IRS puts a code “53″ on your account, indicating that collection activities have been suspended.
In order to get this economic hardship status, the IRS has to review your income as well as your living expenses. They will also review your assets and any liabilities you may have. For your living expenses, reviewing means comparing them to the charts they have (which cover, food, clothing, car expenses and housing/utilities), in order to see if you really do seem to be in economic hardship. If any of your expenses are too high, you will be unable to claim economic hardship. You need to be aware that you need to have no cash flow to qualify for Currently Not Collectible status. If the IRS is not satisfied that you qualify, you can be given time to adjust your expenses. Although, not everyone manages to do this to the satisfaction of the IRS, and sometimes bankruptcy is a better option in these cases.
It should also be noted that Currently Not Collectible status does not mean interest and penalties are forgiven. You will still have to pay these eventually. However, for some individuals, being a code 53 can be a good thing, because after 10 years the IRS is required, by law, to clear the balance owed and bring it back to zero.
