Internal Revenue Service Policy Statement 5-71 permits hardship status on IRS accounts, as follows:
If there are limited assets or income but it is determined that levy action would create a hardship, the liability may be reported as currently not collectible. A hardship exists if the levy action prevents the taxpayer from meeting necessary living expenses. In each case a determination must be made as to whether the levy would result in actual hardship, as distinguished from mere inconvenience to the taxpayer. If, after taking all steps in the collection process, it is determined that an account receivable is currently not collectible, it should be so reported in order to remove it from active inventory.
Internally within the IRS, hardship aka currently not collectible, is known as a “53” case, for the transaction code the IRS inputs into your account to indicate a suspension of collection activities.
The IRS can also settle a hardship case by submission of an offer in compromise rather than have it linger in the system.
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