We thought we'd illustrate a case of an actual client, so you can see how it works. The client we speak of lives in Fresno, California. He hired us in October of 2009. He paid Washington Tax Services a flat one-time fee of $1100.00 for us to represent him before the IRS. He owed the IRS $60,000.00 for unpaid 1040 taxes for every year 2003 thru 2008. His case was in Automated Collection Systems (ACS) of the IRS.
Before contacting ACS, a staff member contacted the Tax Practitioner Hotline (TPH) to find out what the client owed and whether there were any returns unfiled. All of the balances were noted. The client had NOT filed for 2009 yet and it was conveyed to him to do that quickly, as he expected to owe taxes again.
In October, we contacted the IRS on his behalf using the Power of Attorney form. After giving the IRS a financial statement for this client (which was compiled from a questionnaire we sent the taxpayer), the IRS agreed to consider giving the client "currently not collectible status." The IRS wanted him to get loan denial and application letters (important to have both) from the IRS showing his inability to access the equity in his house to pay them. The IRS gave us until November 2nd to provide the documents. The client was delayed in getting said documents to us until November 5, 2010. In that week, I recontacted the IRS with these documents. The IRS person indicated to me that the case would be put in "Uncollectible Status" pending managerial approval. Key point: client would have to pay their 2009 taxes due on April 15th in full.
As we never heard from the manager, we can assume that the IRS placed him in uncollectible!
Key provisions of Uncollectible status:
1. The IRS will discontinue all collections against you for the debt.
2. A tax lien will be filed against you, in case you sell property.
3. Your future tax refunds will be applied against the debt.
4. If your circumstances change -- improved income, etc., the IRS can reopen collections against you.
5. If the IRS does NOT collect against you, the taxes will eventually expire (10 years after the taxes were originally assessed).