One way to get out of IRS debt is to be declared "Currently Non-Collectible" (CNC) by the IRS. Note the term "Currently".... As the name implies, Currently Non-Collectible means the IRS considers that your current financial situation makes it impossible for you to pay your taxes and they determine that they cannot collect the money from you...at least not for now.
So, in other words, being declared CNC is a potential short-term fix to your IRS problem. But, in the end, you may still have to pay the taxes you owe (plus penalties and interest) once you start making more money.
The interesting thing about being declared Currently Non-Collectible is that this can last indefinitely. If the IRS monitors your future W-2's and sees that your income has not increased by 15% - 20%, your Non-Collectible Status stays "current".
The IRS usually gives you some breathing room and reevaluates your situation after 18-24 months. If by that time you're showing positive cash flow, you may be put on a payment plan.
However, if you are declared CNC, it doesn't get you off the hook for paying your taxes in future years. In other words, if you're declared to be Currently Non-Collectible for the taxes due for years 2004-2006, you will still owe the taxes due for the year 2007, 2008 and so on.
In fact, you must pay these future taxes in full and on time or you'll blow it big time. If you neglect to pay your taxes for future years, or worse – you don't file...the whole CNC deal is off.
If this happens, the IRS will come after all of the money you owe them, and they may use garnishments, levies, seizures, liens and all of the "nasty" tactics at their disposal to get their money.
If you're thinking "man, that sounds like it's for me..." don't rush to the phone to call the IRS just yet. You see, what you list to the IRS as being "ordinary and necessary living expenses" - causing you not to be able to pay...may not live with what the IRS considers "ordinary and necessary".
And guess who has the last word? The IRS, of course. Your financial situation will be put under tight scrutiny. Some of the expenses that you consider to be "ordinary and necessary" won't fit the IRS definition of ordinary and necessary at all and will be rejected altogether. Now you're on the hook for a monthly payment that you can't afford...but the IRS "thinks" that you can pay it. Not a good situation to be in.