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Services: Deemed Uncollectible

Taxpayers are often unable to make any payments to the IRS because of the loss of a job or the downturn in the economy. Sometimes a taxpayer is unable to pay because of his or her age or health. When faced with such a situation, the IRS is forced to decide whether to expend additional resources to collect the liability or decide whether to deem a taxpayer’s account as uncollectible. Being deemed temporarily uncollectible is an additional option that may be available to a taxpayer to resolve his or her tax problems.

The IRS may deem a taxpayer’s account as uncollectible for one or more of the following reasons: hardship, bankruptcy, no assets or an inability to pay. If a determination is made that a taxpayer is uncollectible, the taxpayer’s account is removed from active IRS collection. However, although a taxpayer’s account may have been removed from collection, the IRS is not legally barred from attempting to collect a taxpayer’s tax liability in the future provided that the collection statute of limitation is still open. Furthermore, interest will continue to accrue on the unpaid liability.

While this option may be available for a taxpayer to temporarily resolve his or her tax liabilities, it is often difficult for a taxpayer to learn whether the IRS has deemed them as uncollectible because, as a policy, the IRS does not generally disclose that a taxpayer has been deemed uncollectible. This IRS policy is designed to encourage a taxpayer to continue to make an effort to address his or her tax liability. Nevertheless, Patrick T. Sheehan & Associates has the ability to determine a taxpayer’s status within the IRS. Patrick T. Sheehan & Associates can determine if being deemed uncollectible is an appropriate option for you.

Case study: In this case study, our taxpayer was a real estate salesperson whose income had dropped substantially because of the downturn in the economy. Because the IRS believes that the economy will improve and that our taxpayer will be able to pay his liability in the future, they are unwilling to consider an Offer in Compromise. Our taxpayer cannot make any payments under an installment agreement because he is simply not making enough money. In this case, Patrick T. Sheehan & Associates was able to negotiate a status of “deemed temporarily uncollectible” for our taxpayer. As a result, the IRS agreed to leave our taxpayer alone until he gets back on his feet. The liability still exists, but the IRS will not take any enforced collection action against our taxpayer. Under deemed uncollectible status, the taxpayer must still file all of his tax returns on time and must pay all of his liability in full going forward. Further, the IRS will keep all refunds due to the taxpayer. Our taxpayer now has enough time to concentrate on improving his business and to get back on his feet.

Patrick T. Sheehan & Associates has successfully represented taxpayers in determining their collection potential and whether being “deemed uncollectible” is a viable option. Our firm possesses both the skills and experience necessary for success when dealing with the IRS regarding this option for resolving a taxpayer’s tax liabilities.

Please call Patrick T. Sheehan & Associates, Attorneys at Law, P.C. at 630-832-6500 to schedule an appointment or to obtain additional information.

We can help. Call us before the IRS calls you! ®