Two provisions of the tax law exist for taxpayers whose situation does not fit the ordinary collection process: those who cannot pay without giving up the necessities of life, and those who are being held responsible for a spouse's tax that they did not know about and did not benefit from.
Currently Not Collectible status
When the IRS determines that a taxpayer has no ability to pay — that collecting the liability would leave the taxpayer unable to meet basic living expenses — it may place the account in Currently Not Collectible status, sometimes called hardship status or "Status 53." While an account is in that status, the IRS does not levy, does not garnish, and does not demand payment. The liability remains, interest continues to accrue, and the IRS may file a Notice of Federal Tax Lien, but active collection stops.
The determination is made on a financial statement, Form 433-A or 433-F, and the standard is strict: your necessary living expenses, measured against the IRS National and Local Standards, must equal or exceed your income. The IRS reviews the account periodically and will reinstate collection if your income rises above a threshold it sets when it closes the case. For many taxpayers, however, Currently Not Collectible status lasts until the collection statute of limitations — generally ten years from assessment — expires, at which point the liability is no longer legally enforceable.
The decision between Currently Not Collectible status, a partial payment installment agreement, and an Offer in Compromise depends on your financial facts, your age and health, how much time remains on the collection statute, and whether your circumstances are likely to change. We evaluate all three before recommending one.
Innocent spouse relief
When a married couple files a joint return, both spouses are jointly and severally liable for the entire tax, including any additional tax assessed later. The IRS may collect the whole amount from either spouse. Internal Revenue Code §6015 provides three forms of relief from that rule.
Innocent spouse relief under §6015(b) applies where the return understated tax because of erroneous items of the other spouse, the requesting spouse did not know and had no reason to know of the understatement when signing, and it would be inequitable to hold the requesting spouse liable. Separation of liability under §6015(c) is available to a spouse who is divorced, legally separated, or living apart from the other spouse for at least twelve months; it allocates the deficiency between the spouses as if they had filed separately. Equitable relief under §6015(f) is the broadest provision, available where the first two do not apply, including for underpaid tax reported on the return but never paid. The IRS weighs marital status, economic hardship, knowledge, legal obligations under a divorce decree, who benefited from the unpaid tax, and the presence of abuse or financial control.
A request is made on Form 8857. The IRS is required to notify the other spouse, who may participate. The deadline is generally two years from the first collection activity against the requesting spouse for §6015(b) and (c) claims; equitable relief claims may be made within the collection or refund period. If the IRS denies relief, the requesting spouse may petition the United States Tax Court.
What the firm does on these matters
- Financial analysis under the IRS Collection Financial Standards to determine whether Currently Not Collectible status is supportable
- Preparation of Form 433-A or 433-F and the hardship documentation the IRS requires
- Representation before the Revenue Officer or Automated Collection System in obtaining hardship status
- Evaluation of all three forms of relief under §6015 and selection of the strongest basis
- Preparation of Form 8857 with a detailed statement of facts and supporting records
- Response to the IRS's preliminary determination, and appeal to the Independent Office of Appeals
- Petition to the United States Tax Court where relief is denied
- Protection of your rights where the IRS has begun collecting a joint liability from you alone