Have a Tax Question? Ask a Tax Expert
You can enter in noncollectable status; this will not suspend the 10 year status. From the experience of many years of dealing with the IRS although a 10 year statute exists, it is not enforceable. As long as there is a balance due, it is going to remain on the books of the IRS.
You can go into non-collectible and it can sit there for 20, 30 or 40 years ( I have seen it multiple times). If there is something for them to put a lien on they will do it and it will forever remain enforce until the bill is paid in full. So you would be in a position of not being able to sell a house that had a lien on it without agreeing to pay the lien in full at closing.
If you elect to go on an installment agreement, they may agree to remove the lien. Generally they do not and it would probably be sitting with the lien until the amount is paid in full.
Did the tax office mention an offer in compromise to you at all? This might be a best option. If IRS does not think you can pay the full balance in a reasonable period of time (generally 5 years), they may agree to a reduced paid in full. Not likely to be the "pennies on the dollar" that you see on TV, but often I see where there is a reduction to just the tax paid and the penalties and interest go away OR you might be able to get a 40% or possibly even if 50% reduction. So you might get away instead of paying $10,000 you might be able to settle for $6000 and the debt paid in full.
With the acceptance of an offer in compromise it could be a lump sum payment that is required or it could be an installment payment for 24 or 36 months.
This would get rid of the debt over a period of time, the lien would be removed allowing for a house to be sold.
To qualify for the offer in compromise it needs to be apparent based on your current status that it cannot be anticipated by the IRS that the debt would be paid within 10 years.
I hope this helps. If you have a specific question do not hesitate to hit the need info button and ask. Otherwise, hit the accept button to close out the question.
OIC are not easily accepted but if prepared properly and justified it will be accepted. The problem is many who file it are not qualified to do so.
I do understand the statute about it falling off after 10 years which basically only works if there is nothing they could collect on. The problem is that is the IRS can attach something then it is still considered collectible and does not get removed. For example, if they can put a lien on a house it can sit there for 20 years until the house is sold or until the person passes away and then get paid. And yes, penalties and interest continue to accrue.
The uncollectible status just simply says that IRS will not be currently pursuing payment. Meaning, notices are not generated every 30 days, they will not attempt to levy bank accounts. They will not file any additional tax liens. Basically the debt is just sitting there to see if something changes to make it collectible.
About once a year or so you would get a request from IRS to determine if you need to remain in uncollectible status but other than that nothing happens. If you do receive refunds from current filings they will take those but other than that no attempt to collect is made.
Florida has nothing to do with it since we are talking federal law.
Statically it has been shown through a number of studies that IRS gives more wrong answers than right. The only thing they generally are willing to do is to pay any penalties and interest resulting from incorrect advice - they will do nothing about the tax issue.
I would recommend rather than a tax attorney that you have an EA or CPA prepare your OIC. Or if you have a local IRS office sometimes you can find someone there who will help prepare it. I would recommend you head to the National Association of Enrolled Agents website and find someone who has experience in completing OIC - they have a list of members on their websites and areas of expertise. You do not have to use someone local to you, it can be done over the phone or through email.
I would also suggest that you first head to the IRS website and get a copy of the offer in compromise application. You can save yourself some dollars if you get all the pertinent information together in an easy to follow format for someone to then prepare the form. Most EAs or CPAs charge by the time for this particular form. You could even prefill some of it but be sure to forward that documentation for the accountant to verify it.
Normally IRS will not report anything to the credit agencies unless it goes to a judgment state so the likelihood is that this will not affect your credit if you get it resolved quickly.
If you have an option of a low income attorney who has done OIC before that is fine. Many think they can do it, but it is not as straight forward as one might think. The determination of how much to offer is the biggest issue.
I have done a few OIC but would not consider myself by any means an expert and prefer not to do them. So - if the attorney does not work out, then head to NAEA for someone with expertise in this area. NAEA is the National Association of Enrolled Agents.
And just to clarify - I am a CFP, certified financial planner and an EA, enrolled agent but not a CPA.
Hopefully you can get the answer accepted, if not please contact JustAnswer since I cannot control that. Use the report option in the upper right part of the screen.