Back to the Basics: What is Currently Not Collectable Status?
One of the main options taxpayers have in delaying making a payment to the IRS is currently not collectable status. This is one of the options such as an installment agreement or an offer in compromise.
A basic definition of currently not collectable status is that the taxpayer does not have any money left over after paying allowable expenses each month to pay anything towards their IRS tax liability. The outcome is very desirable to the taxpayer. You do not have to make any payments to the IRS during the period of time you are in currently not collectable (or "uncollectable") status. During the time you are in uncollectable status, the IRS will not be able to actively pursue you at all. That means you should not receive any threatening collection letters or calls from the IRS regarding your taxes. You can think of uncollectable status as a gift from the IRS allowing you a little more time to "get back on your feet."
Before you begin to jump for joy, there are a few things you should know. This is not a permanent solution. Typically, the IRS will set up uncollectable status for one or two years. At the end of that time, they will come back and re-evaluate your financial situation to see if anything has changed for the better and you are now able to make some sort of payment to the IRS.
Many times, a taxpayer will "luck out" because the IRS will simply forget about them once they have been placed in uncollectable status - especially if the statute of limitation is about to expire on their tax. If that happens, you may be able to ride out the uncollectable wave and not have to pay back the total amount of taxes you owe.
The IRS does request, however, that even though you are not required to make payments on your back taxes, if you are able to you should, and you should keep your current taxes paid and current as time progresses. You will want to do this anyway, becasue common sense tells us, if the IRS comes back and determines you are now financially able to pay your tax, you don’t want a lot of new taxes dumped on your plate.