There is no doubt that 2020 will be remembered as one of the most turbulent years the U.S. has experienced in post-modern history. While Wall Street painted a picture of prosperity, Main Street has been suffering the worst economic downturn since the Great Depression. Due to the COVID-19 pandemic, millions of people in the U.S. lost their jobs while the cost of living skyrocketed. People drained their investment and retirement accounts just to make ends meet. Sadly, many who liquidated their investments and retirement accounts during 2020 may be in for a devasting tax bill from Uncle Sam come next April. While some taxpayers may be able to pay their tax due in full or qualify for a monthly installment agreement, others still will be struggling to keep the lights on in their home, much less have the financial ability to make monthly payments to the IRS. What does a taxpayer do if they have to choose between paying their rent and the IRS?
What is Currently Not Collectible status?
When a taxpayer cannot make a monthly payment towards their tax due without impacting their ability to pay for necessary living expenses, the IRS will place the taxpayer’s account in
Currently Not Collectible or CNC status. Remember, the IRS’ definition of “necessary” expenses may be quite different from yours. For example, the IRS may not interpret the platinum cable subscription plan as a “necessary” expense. If you own two cars and only need one or you only have one car, but it is a Ferrari with a hefty monthly payment, the IRS may insist the Ferrari be traded in for a more economical vehicle. If a taxpayer is granted CNC status, the IRS will temporarily suspend collection activities and any payment requirements.
How do you request Currently Not Collectible status?
There is no official form to request CNC status. You can request the IRS place your account into Currently Not Collectible status by calling the telephone number listed on your most recent IRS notice. If you cannot locate your most recent notice, you may call the main IRS line at 1-800-829-1040.
What does the CNC qualifying process look like?
Before the IRS places a taxpayer’s account into CNC status, the IRS will request the taxpayer to provide information about their current finances by filling out Form 433-F or Form 433-A,
Collection Information Statement. Usually, if the total balance due to the IRS is not significant, the taxpayer is currently incarcerated, unemployed with no source of income, only receives Social Security, welfare, or unemployment benefits, the IRS will not request the taxpayer to provide a completed Form 433-F or Form 433-A. If a taxpayer is gravely ill with substantial medical bills, the IRS will waive the requirement of filing out Form 433-F or Form 433-A.
With the information from these forms, the IRS will conduct a financial analysis to determine the amount a taxpayer can pay monthly if any. Some of the financial information that is requested include bank and retirement accounts, a list of any cryptocurrency the taxpayer owns, real estate property owned, a list of active credit cards, cars the taxpayer owns, employment information, other non-wage income received monthly, and a list of monthly expenses. The list of monthly expenses the IRS will be reviewing is long and includes amounts spent on rent or mortgage payments, utilities, food, clothing, personal care products, transportation, childcare, student loans, tax payments, and term life insurance. When reviewing a taxpayer’s financial information, the IRS will see if the taxpayer has enough income over expenses to make monthly payments. They will also determine whether the taxpayer has any assets that can be sold or borrowed against to pay the tax due. (It is essential to keep in mind that the IRS will usually not require a taxpayer to sell their only home or car.) Generally, if a taxpayer has less than $25 of monthly disposable income, the IRS will place their account into CNC status. For more information about IRS living expense allowances, please look at our
webpage on this topic.
What else you need to know about Currently Not Collectible status.
Once an account is placed in CNC status, the IRS will cease collection action, which includes any levy or garnishment actions that are currently taking place. However, if the taxpayer owes more than $10,000, the IRS will issue a Notice of Federal Tax Lien. When a taxpayer is placed in CNC status, they usually remain there for at least one year. The IRS will review the taxpayer’s financial situation through their future submitted income tax returns. If the taxpayer’s financial situation improves, the IRS will request the taxpayer to submit updated financial information. Then, the IRS will determine if the taxpayer can begin making payments towards the balance due. If the taxpayer’s financial situation does not change, the taxpayer may remain in CNC status until the statute of limitations on collecting the tax has expired. (Generally, the IRS has ten years from the date the tax is assessed to collect the balance due.)
The IRS will write off any remaining balance owed once the time the IRS has to collect the tax due expires. The IRS cannot request a taxpayer to extend the time they have to collect. Penalties and interest will continue to accrue while the account is in currently not collectible status, and taxpayers will annually receive IRS Notice CP71A, which will list the accrued penalties and interest. When the taxpayer is in CNC status, any future refunds will be offset and applied to the outstanding balance due.
How TaxAudit can help you with CNC status.
Our experts at TaxAudit’s Tax Debt Relief Assistance have years of experience navigating the perils and pitfalls of IRS collections. In fact, our Director of Tax Services, Arnold van Dyk, Esq., has created an informational video on currently not collectible status.
If you find yourself in a whirlwind of tax debt and can’t make ends meet, you may qualify for currently not collectible status. Don’t let the process of requesting currently not collectible status from the IRS overwhelm you into inaction. Please
contact us for a free initial consultation today!