If your current financial situation does not allow you to pay your taxes, the IRS may place you in “Currently Not Collectible” (CNC) status. By demonstrating substantial financial hardship, the IRS will stop trying to collect from you, and will cease any levies on your assets and income. However, this status only lasts temporarily. Your tax debt does not disappear, and will continue to accumulate interest and late penalties.
Qualifying as Currently Not Collectible
To qualify for CNC, you must demonstrate that you have a substantial financial hardship. This means that after paying living expenses, you have little or no income left to pay your tax debt. The IRS has a calculation they use to evaluate your financial situation. They will consider all your sources of income, including wages, interest, dividends, distributions, and business income. Then, the IRS will compare this total to national and local standards for living expenses; this includes expenses such as food, healthcare, housing, utilities, and transportation. If they find that after living expenses you do not have any income left over, you may be granted CNC status.
How To Request Currently Not Collectible Status
No matter your income, CNC status does not happen automatically, and you must not ignore your tax debt. It is recommended that you file tax returns for prior years, even if you are unable to pay the amount you owe. To make the request for CNC, you can call or write to the IRS, and they will let you know what information you are required to provide in order to prove your hardship. Alternatively, you may work with a qualified tax resolution attorney, who will ensure that your prior tax returns are in order and will submit the required paperwork and supporting financial information.
What Happens After Qualifying
Qualifying for CNC does not mean you are off the hook for your tax debt. If you owe more than $10,000, the IRS will likely file a federal tax lien. In addition, if you are owed any refunds in future years, the IRS will take these until the tax bill is paid. Every year, the IRS will review your returns to see if you have enough income to pay your tax debt, and they may send you notices requesting additional financial information. During this time, you have the option to voluntarily make payments towards your debt, which may help to reduce accruing interest.
The statute of limitations on collecting tax debt is generally 10 years. In some cases, if you remain in CNC status for 10 years, the tax debt will no longer be collectible. Because of the complexity of the applicable tax code, it is recommended that you consult with a tax attorney to determine if the statute of limitations applies to your case.
Options for Appeal
After reviewing your financials, the IRS may decide that you are able to pay. If you disagree, you can request a conference with the IRS Collection Manager. You may also have the option to appeal certain collection actions. A tax resolution attorney can assist you in this process and determine the best strategy for your individual situation.
Alternatives to Currently Not Collectible
CNC status is not the best option for everyone. Other alternatives may help you out of your tax debt, such as an Offer in Compromise, an Installment Agreement, or a Penalty Abatement. While pursuing these options, you will be responsible for paying your tax debt. However, you may reach a compromise to pay less, make payments in installments, or be relieved of certain penalties.
Contact an Attorney
A qualified tax resolution attorney will evaluate your financial situation and tax debt to find a solution that is best for you. Applying for CNC status, particularly if you are initially denied, can be a complicated and stressful process. We can help. Connect with a qualified tax resolution attorney today by calling us at 1-800-571-7175. We offer free no-obligation tax advice.