Despite the Internal Revenue Service’s powerful collection tools, it is not able to collect all of its accounts receivable. It therefore must report some accounts as Currently Not Collectible. Once, an account is placed into Currently Not Collectible Status all collection activities against the Taxpayer must cease. Additionally, the Internal Revenue Service is required to immediately release any wage levy. The Internal Revenue Service may report an account as Currently Not Collectible when collection of the liability would create an undue hardship for the Taxpayer by leaving him or her unable to meet necessary living expenses.
What constitutes “undue hardship” is strictly construed by the Internal Revenue Service. What many Taxpayers view as “undue hardship” the Internal Revenue Service officially characterizes as “mere inconvenience.” In making its determination, the Internal Revenue Service will request a financial statement and documentation from the Taxpayer. If the Taxpayer is granted Currently Not Collectible Status the tax debt will remain on his or her account and will continue to accrue interest. The statute of limitations on collection activity will also continue leaving the possibility that the time period for collections could expire while the Taxpayer is in Currently Not Collectible Status. The Taxpayer may be removed from Currently Not Collectible Status if his or her financial condition changes and the “undue hardship” which qualified the Taxpayer for Currently Not Collectible Status no longer exists.