The IRS can declare a taxpayer as “currently not collectible” which means the taxpayer has no ability to pay his or hers tax debts. The IRS requires proof that the taxpayer does not have the ability to repay. This proof is usually done by submitting IRS Form 433-F . Once the IRS establishes the taxpayer as currently not collectible it must stop all collection activities such as bank levies and wage garnishments. The service will continue to mail annual statements of the amount owed but it is not a bill. This is because while in the CNC status the 10 year collection statute continues to run.
IRS Policy Statement P-5-71 provides the authority for reporting accounts currently not collectible (CNC). The knowledge of this citation will be very helpful in case you run into an ill informed IRS representative.