When a case is in collections with the IRS and you cannot afford any payment (as determined by the IRS Collection Financial Standards, you have two options:
- Currently Not Collectible Status – Effectively a $0/month payment plan.
- Offer in Compromise – A settlement of the entire debt.
Currently Not Collectible status will release garnishments on wages and prevent future bank levies from happening. It is sometimes referred to as hardship status. The IRS will however file liens on your credit report, against any real estate, and against any vehicles you own.
If you already have liens from the IRS, requesting Currently Not Collectible status is best to do prior to submitting your Offer in Compromise. Just in case your settlement is not approved, it is not in collections after it is rejected, it sits in a protected status. If you have an active IRS wage garnishment, it is also best to file for Currently Not Collectible prior to submitting an Offer in Compromise settlement, to make sure your garnishments are released. When you submit an Offer in Compromise, sometimes they release garnishments and sometimes they do not, so its best to make sure its released through Currently Not Collectible status. You may also want to place your case into Currently Non Collectible status if the statute of limitations on your debt is coming up soon, also referred to as the Collection Statute Expiration Date.
An Offer in Compromise can settle your entire debt and absolve it of you completely. If accepted, you have to stay compliant by filing on time and paying in full any tax returns for the next five years that have a balance due. Some clients may qualify for Currently Not Collectible status because they have little income, but will not qualify for an Offer since they have an asset that is worth more than the tax balance.
If you qualify for an Offer in Compromise and have no prior tax liens or active garnishments, it is best to submit it right away rather than file for Currently Not Collectible status first. The IRS reserves the right and can file a lien while your Offer in Compromise is pending, but most of the time they do not. See our Offer in Compromise Guide for more help on this. To find out what will get you a lien from the IRS, see our IRS Lien Guide.