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Currently Not Collectible – Vinatieri v. Commissioner: TAXPAYER FACING ECONOMIC HARDSHIP MAY STOP IRS LEVY DESPITE UNFILED RETURNS May 13, 2012

Posted by Insight Law Firm in Income Tax, IRS, Tax.
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The IRS possesses authority to levy the personal wages and property of taxpayers owing past taxes, interest, or penalties. However, when a taxpayer in poor financial condition can establish that the IRS’ levy creates an economic hardship, the IRS must release part or all if its levy and utilize collection alternatives. These alternatives might include preparing an installment agreement for the taxpayer, accepting an offer-in-compromise, or granting the account status as currently not collectible.

The dispute in Viatieri arose when the IRS proceeded with a levy against a taxpayer owning only $14 in cash and a $300 car she depended on to get to work and earning only $800 a month, which was consumed by the $800 a month she spent on basic living expenses for herself and her daughter. The IRS argued that the taxpayer was not eligible for relief, because she had failed to file tax returns in two prior years. The U.S. Tax Court disagreed, concluding the IRS cannot proceed with a levy that would create an economic hardship for an individual. Instead, the IRS should consider a collection alternative.

Viatieri does not otherwise change the requirements for relief. To qualify for these collection alternatives, a taxpayer still must establish the levy would pose an economic hardship by providing accurate and complete financial information to support his or her arguments. Taxpayers unsure of their eligibility for collective alternatives or who seek assistance in establishing economic hardship to the IRS should seek the assistance of a local tax attorney.

133 T.C. 16 (2009)

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