Achieving Non-Collectible Status for Tax Debt

CASE STUDY DETAILS

Achieving Non-Collectible Status for a $170,000 IRS Tax Debt

The Problem:

This client came to me in a state of chaos. He had multiple years of unfiled tax returns and was already under audit by the IRS. The audit had resulted in an inflated tax liability due to incorrect substitute-for-return (SFR) calculations by the IRS.

Once we took over, we immediately addressed the audit. We filed accurate tax returns for the unfiled years, reducing the inflated liability. However, even after corrections, the client still owed $170,000. Complicating matters further, he owned a home with $200,000 in equity, which made it difficult to negotiate an Offer in Compromise (OIC) under normal circumstances.

Small Business Owner

Personal & Business Tax Debt/Liability

Boise, ID

Our Solution:

After assessing her situation, we developed a two-pronged strategy:

Correcting the IRS Audit:

1. - We thoroughly reviewed the IRS’s audit findings and filed accurate tax returns for the unfiled years, substantially reducing the liability to $170,000.

Attempted Offer in Compromise:

1. - We initially pursued an Offer in Compromise, citing the client’s financial hardship and lack of liquid assets. However, the IRS rejected the offer because of the home equity.
  - Despite presenting a strong case, the IRS Appeals Office confirmed that the equity in the client’s home was too significant to disregard, even though the client had no way to access the funds.

Request for Non-Collectible Status:

Recognizing that an OIC wasn’t viable, we shifted our strategy to requesting Currently Non-Collectible (CNC) Status.
We prepared detailed financial statements and supporting documents to demonstrate the client’s inability to pay, showing that his income was just enough to cover basic living expenses.
The CNC status allows the IRS to suspend collection activity, meaning no levies or garnishments would be pursued.

The Outcome:

The IRS approved the client’s Non-Collectible Status, effectively halting all collection efforts. While the debt remains, no payments are required as long as the client’s financial situation does not improve. Additionally:

The IRS collection statute of limitations is running out, meaning the debt is likely to expire in the coming years.
The client can now focus on maintaining his business income and supporting his basic living needs without fear of IRS enforcement actions.

Why It Matters:
Although the ideal outcome would have been an Offer in Compromise, this case highlights the importance of alternative strategies like CNC status. In this situation, it was the best option given the client’s circumstances, ensuring peace of mind and financial stability while the debt’s expiration approaches.

The client is now living a stress-free life, operating his business, and waiting for the tax liability to expire. This case underscores how creative solutions tailored to each client’s unique situation can bring relief, even when faced with significant obstacles.

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Achieving Non-Collectible Status for Tax Debt

CASE STUDY DETAILS

Achieving Non-Collectible Status for a $170,000 IRS Tax Debt

Our Solution:

The Outcome:

Still Have Questions About Your Taxes? Schedule a Call with Our Experts Today!

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