When hit with an overwhelming tax bill, it’s natural to feel like the walls are closing in. Few people can afford to pay such a large amount in one go, and if you’ve tried every other repayment option without success, you might need to consider the Currently Not Collectible (CNC) status. This status can provide you with some much-needed relief by halting IRS collection efforts, allowing you the time to find a solution that works for you.
We understand the stress and anxiety that comes with being in this position, but there’s a way forward. Taking proactive steps now can not only ease the pressure but also give you the breathing room you need to explore all available options.
Keep reading to find out if currently not collectable status could be the right path for you, and remember, we at Salinger Tax Consultants are here to assist you with any questions you may have.
What is Currently Not Collectible Status with the IRS?
IRS Currently Not Collectible is a status the IRS can grant to taxpayers who are unable to pay their back taxes due to financial hardship. When you are granted CNC status, the IRS temporarily suspends all collection activities against you, including levies, IRS wage garnishment, and threatening letters.
This status is available for a specific timeline to those who can prove that paying their tax debt would cause significant economic hardship. While currently not collectible status IRS stops collections, it’s important to note that the IRS requires you to be compliant with all tax filings before granting this status.
Eligibility for IRS Non-Collectible Status
This section will help you determine if you’re eligible for relief from IRS collections, providing clear guidance on how to protect your financial stability during tough times. Understanding these criteria can offer you the breathing room you need to regain control of your finances.
- Income Level and Living Expenses: If your income is too low to cover both your living expenses and your tax debt, you may qualify for CNC status.
- Impact of Essential Costs: When your necessary expenses, such as housing, utilities, and healthcare, consume most of your income, the IRS might consider you for CNC.
- Financial Challenges: Situations like job loss, illness, or other financial setbacks that significantly reduce your ability to pay can make you eligible.
- Availability of Assets: If you lack valuable assets that can be sold to pay off your tax debt, this strengthens your case for CNC status.
Required Documents for Currently Not Collectible IRS Status Application
When you apply for Not Currently Collectible status with the IRS, you’ll need to submit certain documents to show your financial situation. These documents might include:
- Your latest pay stubs or proof of income
- The most recent real estate tax bill or a record of your rent payments
- Copies of your utility and insurance bills
- Statements for auto loans, other debts, and credit cards
- Proof of any assets, such as savings accounts, stocks, or bonds
- Records of your monthly expenses, including food, transportation, child care, medical costs, and any court-ordered payments
These documents help the IRS get a clear picture of your financial situation to determine if you qualify for Not Currently Collectible status.
Important Details About Currently Not Collectible IRS Status
- Future Tax Refunds: If you receive a tax refund in future years, the IRS will take it and apply it to your outstanding tax debt until it’s fully paid off.
- Federal Tax Liens: If you owe more than $10,000, the IRS will typically file a federal tax lien, which can affect your credit and make it harder to sell property.
- CNC Status Review: CNC status isn’t always permanent. The IRS will review your financial situation regularly, usually each year, to see if you’re able to start making payments again. They’ll check your income through your tax return or information forms like W-2s and 1099s. If your income increases beyond the living expenses you initially reported, you may be required to start paying your tax debt unless your necessary expenses have also increased.
- Statute of Limitations: If your financial situation doesn’t improve and you remain in CNC status, the IRS may eventually “write off” your tax debt after 10 years. This is because the IRS has a 10-year limit to collect taxes, known as the collection statute of limitations. However, this can be extended in certain situations, such as if you filed an offer in compromise or spent time out of the country.
What to Do Next?
If you’re facing financial hardship, applying for CNC status might be a good option for you. You may also want to consider an IRS offer in compromise, which could allow you to settle your tax debt for less than the full amount owed.
If you’re unsure of the best way to handle your tax bill, it’s wise to consult with Peter Salinger. He is a qualified expert who can help you explore your options and work with the IRS to find the best solution for your situation.
How to File Currently Not Collectible with IRS?
Following these steps will guide you through the IRS Currently Not Collectible process, helping you take control of your tax situation and explore the best options available to you.
Step 1: Contact the IRS
- If you’ve received a notice from the IRS about your tax debt, use the contact information provided on the notice.
- If you don’t have a notice or didn’t receive one, call the IRS directly at 800-829-1040 (for individuals) or 800-829-4933 (for businesses). TTY/TDD users can call 800-829-4059.
Step 2: Submit Required Documents
File any overdue tax returns. Complete the necessary Collection Information Statement (CIS):
- Form 433-A for Wage Earners and Self-Employed Individuals
- Form 433-F or 433-B for businesses
You can submit Form 433-F to an IRS Revenue Officer or through the IRS Automated Collection System unit.
Step 3: Be Aware of Additional Costs
- The IRS will continue to add late payment penalties and interest to your outstanding balance.
- If you’re self-employed, keep making estimated tax payments for the current tax year.
- Businesses should continue to make federal tax deposits.
Step 4: Understand Expense Limits
- The IRS has limits on some expenses, such as monthly car payments, which they allow you to claim.
Step 5: Discuss Alternative Options
- When talking to the IRS agent, explore other ways to settle your tax debt, like:
- IRS Payment Plan: Pay your debt in monthly IRS installment agreements, available if you owe less than $50,000.
- Short-Term Payment Plan: Pay off your debt within 180 days, with no fees but accruing interest.
- Offer in Compromise: If your financial situation is unlikely to improve, you might qualify to settle your debt for less than the full amount you owe.
Advantages and Disadvantages of IRS Currently Not Collectible Status
Understanding the pros and cons of CNC status can help you make an informed decision about managing your tax debt, ensuring you choose the option that best suits your financial situation and long-term goals.
Advantages of CNC Status
- You gain extra time to address your tax debt without the IRS pursuing collections or garnishing your wages.
- If your financial situation remains unchanged for 10 years, the IRS may forgive your remaining debt, including penalties and interest, as the collections statute of limitations expires.
Disadvantages of CNC Status
- Interest and penalties continue to accumulate, increasing the total amount you owe.
- The IRS may seize future tax refunds to reduce your outstanding balance.
- CNC status is not permanent; the IRS will review your financial situation annually and may revoke your status if they determine you can pay.
- If you owe more than $10,000, the IRS might place a lien on your property until your debt is fully settled.
In Closing!
It’s essential to approach your financial situation with foresight and careful planning. As you work through the process of applying for CNC status, remember that this is an opportunity to take control of your financial future. While CNC status offers temporary relief, it should be a stepping stone toward greater financial stability, not just a pause button.
By staying organized, diligently managing your records, and making small but consistent efforts to improve your financial situation, you can start to build a more secure foundation.
Consider each decision you make as an investment in your future. Whether it’s setting aside tax refunds, cutting unnecessary expenses, or seeking additional income, these actions can gradually help you reduce your debt and regain your financial footing.
And when the tax situations feel overwhelming, don’t hesitate to seek professional guidance. A tax expert can provide the clarity and support you need to make your options effective, ensuring you’re making the best decisions for your long-term financial well-being.
