No matter how honest and faithful you are in paying your taxes, you may find yourself in a situation wherein you no longer have the capability of doing so. When this happens, you can ask for help from the IRS and they might be able to grant you an uncollectible status and will suspend collection efforts against you. This doesn’t mean that you no longer have to pay for your taxes. It implies that your past due taxes would be deferred and will still be asked from you but at a later time. You can take advantage of this situation to reorganize your finances in order to qualify for a more long term resolution in the future.
Uncollectible status can be granted if a taxpayer can prove that they are unable to pay the back taxes and meet the necessary expense test. This test is defined as expenses that are necessary to provide for a taxpayer’s (and his or her family’s) health and welfare and/or production of income.
How Long Can I Qualify For?
As mentioned, this exemption is not permanent. The status can is reviewed on a yearly basis upon filing your return. Contact a Tax Professional at BC Tax for additional assistance and information on determining and qualifying for uncollectible status.
Do you qualify for penalty relief or an Abatement of Penalties?
You would think that it would be an easy task to just call up the IRS receive money back that you have paid toward those costly penalties, once you have paid your past due taxes or if they were accrued due to circumstances outside your control, however it is a long and lengthy process, but if done correctly, can be done successfully.
Abatements can be granted if the taxes were caused by circumstances that resulted to several problems affecting your finances. Here are some instances wherein you can qualify:
Incarceration – If the taxpayer has been incarcerated or imprisoned, it can cause him/her to lose the capability of paying taxes.
Employment Problems – If you are unemployed or the industry you are working with is under recession, it can cause you to have insufficient or no income and can qualify for the hardship status.
Death or Health Issues – If you have had a family member that you were caring for pass away or if you yourself are experiencing medical problems and your medical expenses are consuming your income, this can be a reason to receive relief from penalties. In some cases, taxpayers are under terminal illness or extreme medical condition and IRS considers these situations.
Spousal Relations – When you face marital problems such as divorce, it can result in hardship since your income will decrease, your expenses for legal help might increase and your time that you can use to gain income will be consumed to resolve your issue.
Pregnancy and Other Child Related Issues – Pregnancy, or special education needs, can result in the taxpayer or the spouse to stop working thus limiting source of income.
Other Financial Crisis or Natural Disaster – Financial crisis or loss can be used as a reason for exemption. Some situations include casualty loss from accidents and calamities such as fire or floods, or even market losses and increased mortgage payments.