IRS Not Collectible Status
Key Takeaways:
The IRS Not-Collectible status temporarily halts the collection of back taxes when a taxpayer cannot afford to pay their federal income taxes without facing significant financial hardship.
Individuals who owe taxes but cannot afford their monthly payments are eligible to apply for CNC status.
You can apply for CNC tax program status by consulting a tax attorney or by directly contacting the IRS using Form 433F, Collection Information Statement.
Delaying the collection of taxes and preventing bank levies can help people afford their monthly expenses.
Accounts with CNC status are still subject to federal tax liens and penalties and interest will continue to accrue on the tax debt owed.
CNC status is temporary and can be removed at any time, without warning.
- CNC is one of the available options for the IRS Fresh Start Program.
What is IRS Not-Collectible Status?
Currently Not Collectible is the IRS’s decision to conclude that a taxpayer cannot afford their federal income taxes without significant hardship. This status protects taxpayers against the aggressive collection actions by the Internal Revenue Service.
Simply put, if the IRS receives proof that the taxpayer is unable to pay the tax debt and an account is listed as currently non-collectible, the IRS will stop trying to collect back taxes. Although it does not remove any tax debt owed by the IRS or attempt to settle it, CNC status is an important option for taxpayers who cannot afford to pay the back taxes they owe when filing their income tax return.
The IRS ceases all collection activities including issuing garnishment and levy orders once a taxpayer has been declared CNC, but they will apply your tax refunds toward your tax debt. The IRS sends a taxpayer an annual statement outlining the tax owed. The annual statement is not considered to be a bill.
How to request CNC status?
When facing economic hardship, you can apply to be listed as currently not-collectible by consulting a tax attorney or by contacting the IRS directly using Form 433F, Collection Information Statement. You should ask the IRS for an updated tax balance, which will include interest and penalties. It is important to know what the current balance is. You can also file tax returns to request currently not collectible status. All receipts from filing tax refunds should be kept as proof that your request was sent to the IRS. This means that you will need to document your financial situation for the IRS to assess it.
The IRS will first look at any nest egg you might have, such as a savings account to pay your taxes. If you don’t use it for monthly living expenses, the IRS may also search for it.
The IRS will ask you to show proof of your total positive income and expenses if you don’t have assets to pay off the debt. The IRS wants to know if you can make tax payments toward the debt with installment agreements.
You may be asked by the IRS to submit a financial statement (called Form 433). The IRS may ask you to show proof of your monthly income (with bank deposits and paystubs) and your monthly living expenses (with receipts).
But here’s the catch: You can have expenses set by the IRS. The IRS can limit your expenses to $497 if your monthly car payment exceeds $1,200.
Documentation needed to file currently not-collectible with IRS
To meet CNC eligibility requirements, the following financial information and bank statements are required:
Copies of the latest paycheck stubs for each job for the last month
Copies of your most recent statements of monthly income received
Copies of the most current real estate tax bill, for any property owned, even if it is owned jointly with another person
Copies of utility bills (electronic, water, sewer, and gas)
Copies of the lease or mortgage statement showing monthly rental or mortgage payment
Copies of all credit card statements, including the most recent one
Copies of each car’s most recent personal property bill
Documentation of assets, such as stocks and bonds.
Documentation of monthly expenses related to food and necessities, daycare and medical expenses, and court-ordered payments like child support or spousal support
If you’re married, you must submit the above information for both spouses.
This proof of taxpayer’s income is only applicable to Social Security benefits, retirement income, pensions, child support, and/or the TANF.
The IRS demands that you know when you purchased the property and how much it cost. It is important to know how many miles each car has traveled and what the monthly payments are.
The Pros and Cons of IRS’s Currently Not Collectible Status
There are advantages and disadvantages to receiving a CNC status depending on the taxpayer’s ability to pay their tax debts.
Delaying the collection of tax debt helps people afford their basic living expenses
For those who cannot afford small monthly payments to the IRS, a CNC status can help reduce financial stress by delaying the tax collection process. You might not have to pay any outstanding balance to the IRS until you’re free from financial hardship. Then, you can get rid of the entire liability. The IRS will collect the debt if the taxpayer is unable to pay the tax owed. If the taxpayer can establish a payment arrangement, the IRS has a 10-year statute that can be used.
You will not be subject to levies while having CNC status
Another advantage of the status is that you will not be subject to levies (which is what the IRS uses to garnish your wages and lock your bank account until taxes are paid).
A federal tax lien will still apply to your home
Although delaying the collection of taxes helps ease the immediate financial burden, on the negative side, a federal tax lien will still apply to your property or home.
If you sell your property, the proceeds will be used to pay your tax liability. This means that you will likely have to pay IRS-imposed penalties and interest. After you are granted CNC status by the IRS, the IRS will continue to examine your financial situation to determine if you can pay the taxes due.
The IRS will monitor your financial status and review reports from other parties, such as banks and employers. If the IRS finds that your total positive income has increased significantly, you will be removed from your current, not collectible status. This financial review does not apply to those who have a fixed income, such as a pension, Social Security, or disability. You can remain in the currently not collectible state until your tax liabilities are paid.
Who is eligible for the Currently Not-Collectible Status?
If you owe taxes and cannot pay monthly payments, you are eligible to apply for CNC status.
Listed below are some reasons why accounts are in uncollectible status.
Death of the taxpayer without any collection potential from the estate (cc 8)
The taxpayer cannot meet his or her ordinary and essential living expenses (hardship, ccs 24-32).
Expiration partial or total of the statute for limitation for the collection of tax (cc 04/05).
Unable to contact a taxpayer, even though the address is known. There is no way to enforce collection (cc12).
The business cannot pay back taxes, but it can keep current (cc 13).
An exempt organization, corporation, or limited liability company (LLC) is identified as the liable taxpayer that is liquidated in bankruptcy (cc07).
Other than the taxpayer’s basic living expenses other factors can impact the taxpayer’s financial situation.
The taxpayer’s employment and age.
The number, health, and age of dependents for the taxpayer.
Cost of living in the tax-paying area
Extraordinary circumstances, such as medical hardship, special education costs, or natural catastrophes.
If the taxpayer is forced to move, how much economic loss would that cause?
IRM Section 5.16.1.2.9(6) states that verification of a financial report is not necessary if there is an aggregate unpaid balance of assessment less than $10,000 and at least one condition:
The taxpayer is suffering from a terminal illness or has excessive medical bills.
The taxpayer is in prison.
Social Security, welfare, or unemployment are the only sources of income for the taxpayer.
The taxpayer is unemployed and has no income source.
Accounts with an aggregate unpaid balance exceeding $100,000 will require additional verification under IRM Section 5.6.1.2.9(8)
Individual credit reports. Before an IRS employee can order one, the IRS employee must request a copy from the taxpayer. A taxpayer’s credit score will be affected by an IRS inquiry about their credit report. This new IRM provision is not known by all IRS employees.
Motor vehicle records.
Online or in-person courthouse records check for personal or real property ownership.
CNC status is only temporary and can be removed without warning
The main disadvantage of the IRS CNC status is that it is not a permanent solution and usually only lasts from six months to two years. After being deemed collectible, the taxpayer will have to apply for IRS currently not-collectible status again. You may also be removed from CNC status without warning. Then you will need to scramble for resolution. Although your financial situation may not have changed since being deemed non-collectible you will need to submit financial information again to be considered non-collectible.
Your debt will increase as penalties and interest continues to accrue
Additionally, even while an account has a CNC status, penalties and interest will continue to accrue, and the IRS will revive the case in collections. The debt will be much higher.
CNC status does not suit everyone, but you are eligible, this status can offer much-needed relief from IRS collection problems. Fill out a financial statement detailing how much income you earn and your necessary living expenses to determine if you are eligible to be listed as non-collectible.
What would cause the IRS to take you out of their uncollectible case list to determine if your financial hardship status has been lost?
The IRS demands that all future taxes be filed and paid on time to avoid being uncollectible. If you’re self-employed and have had difficulty saving money for taxes in the past, this will make it impossible to remain uncollectible.
Why should I hire Ideal Tax?
Ideal Tax is a tax settlement service that can help you find the most appropriate form of tax relief based on your financial condition. Whether your financial situation and tax issue would be best resolved with a partial payment installment agreement, offer in compromise, or uncollectible status, Ideal Tax can analyze your collection information statement detailing your financial information and offer further instructions to approach your IRS debt. We can also see if you qualify for the IRS tax debt forgiveness program.
With years of experience dealing with the IRS, tax professionals at Ideal Tax will provide excellent representation and personal attention as they help you navigate your IRS debt and help you resolve your tax problems. When consulting a tax professional, you can be confident that you are exploring all of your taxpayer rights and handling your tax issues according to tax law.
Ideal Tax’s tax attorneys are skilled negotiators with a deep understanding of tax laws and IRS manuals. We will maximize your chances of being placed in non-collectible status. For more information on our other tax relief options, please contact us for a free tax consultation.
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