Have you earned a break from the relentless pressure of the IRS? You might be entitled to it! "Currently not collectible" (CNC) is a status assigned to taxpayers that the government believes are unable to pay their outstanding tax debts. When an account is determined to be currently uncollectible, the IRS collection process is temporarily suspended – this means no harassing letters, intimidating phone calls, or threatened garnishments. If you have received a garnishment notice, your wages are being garnished, or you are in need of general tax relief, read on to learn more about this uncollectible status and to find out if you qualify for it.
What does "currently uncollectible" mean?
You may be familiar with this term from television and radio advertisements for various tax companies that talk about "currently uncollectible" or a "CNC", with buzzwords like "available for a limited time only". That is not true. There is no "limited time" in which someone can achieve the status "currently not collectible.
"Currently not collectible" is a status a delinquent taxpayer may have with the IRS after the IRS temporarily pauses all active collections against the taxpayer.
"Currently not collectible" stops foreclosures, threatening letters, and collection executions until your current financial situation improves. The IRS will do this if the taxpayer has demonstrated that collection has placed them in economic hardship and they cannot afford to pay their arrears.
In most cases, the IRS will not grant a taxpayer this status until they comply with the rules.
Who is eligible for "non-collectible" status?
The definition and qualification for "currently not collectible" status by the IRS can be found in part 5, chapter 16, section 1 of the internal revenue manual. It says that to qualify for IRS CNC, a taxpayer must demonstrate a financial hardship that leaves little to no room to pay off an outstanding tax debt after deducting living expenses. Taxpayer must show a serious economic disadvantage, not just a slight inconvenience.
To calculate this, an IRS official will evaluate the person's "total positive income". Positive total income includes any positive value reported on the income section of the tax return, such as z. B.:
- Income under schedule C (self-earned income from self-employment)
- Income according to schedule F (agricultural companies)
- Income from real estate
- Other sources of income or investment
The IRS adds up your income and compares it to the national and local standard cost of living, which is divided into four categories. Standards that the IRS can deduct from your positive total income include:
- National standards – food, clothing and miscellaneous
monthly living expenses such as food, household goods, clothing and services, personal products and services, and miscellaneous expenses are considered standard deductions ($639 for one person, up to 1.$650 for four people).
- National standards – health care expenses
standard deductions have been established for health care expenses, including medical services, prescription drugs, and medical supplies such as eyeglasses ($49 for persons under 65, $117 over 65).
- Local standards – housing and utilities
standards such as mortgage/rent, property taxes, gas, heating, garbage collection, etc. Are determined by individual counties and based on data from the U.S. Census bureau, american community survey, and BLS derived. Find the deductible amount for your county here.
- Local standards – transportation
transportation deductions are calculated based on nationwide figures for monthly loan or lease payments-called "ownership costs"-and additional amounts for monthly operating costs, broken down by census region and metropolitan statistical area (public transportation: $189; ownership costs: $485 for one car, $970 for two cars; standard operating costs are defined by region).
The IRS combines their standard expenses and deducts them from their total positive income to determine their net disposable income, which could theoretically be used to make tax payments; if paying a tax debt after their basic living expenses would create an unfair economic advantage, the IRS could consider their account uncollectible.
What happens under IRS CNC?
If a taxpayer is determined by the IRS to be currently uncollectible, a tax collection is halted and all collection and enforcement activities are temporarily suspended. Once the IRS agrees that they are unable to pay their balance due to a financial hardship and places their account in CNC status, they are required to leave them essentially alone – with the exception of an annual billing notice – and may not make any further collection attempts. This means:
- No more wage garnishment
- Suspended collection actions
- Cessation of calls and letters
- No further credit reports
- Deferred debt payments
Remember, however, that your debt is not simply wiped away once your account is given the status of "currently uncollectible"; you will still have to pay your tax debt once your situation improves. Even if the IRS classifies you as currently not collectible based on your current situation, it will later reevaluate your situation and your ability to pay your tax debt.
If the taxpayer is included in a CNC, the tax office will check his tax returns every year and see if his income has increased. If the taxpayer's income has increased, the IRS will remove the taxpayer from this status and ask them to complete a new financial statement to determine if they can make payments.
Even if you save money through deferred payments and lifted garnishments, you will end up paying more because interest and penalties will continue to accrue on the outstanding amount.
You will still need to file income tax returns, and any tax refunds owed during the life of the account will be automatically offset and applied to the outstanding debt until it is paid off. Therefore, it is important to speak with a tax professional and learn about all tax relief options, e.G. B. About a settlement offer that may be more advantageous depending on your situation.
How long will my account be uncollectible??
"Currently uncollectible" status is not intended as a permanent solution, but only as temporary relief. How long an account remains protected under CNC status varies from case to case. If the IRS officer deems the account uncollectible, he or she will enter a closure code that will eventually withdraw your case for reconsideration. Which code to use and when to trigger a review depends on your net disposable income and the circumstances of your financial need.
Generally, the IRS has up to ten years to attempt to collect taxes, after which the statute of limitations kicks in. Our financially based cncs do not extend this statute of limitations period.
An important point to remember when applying for a CNC is that the IRS statute of limitations is still running on the taxes owed. The statute of limitations is 10 years from the date the taxes became due. If they are not collected during this period, the IRS can no longer collect these amounts (with some exceptions).
How can I apply for "uncollectible" status?
To qualify for "uncollectible" status, you must submit a detailed financial report to the IRS, which will determine the fate of your case. Before filing, make sure all tax returns for previous years have been filed – even if you can't pay them now – so your account with the IRS is in good standing. Documents to assemble for your CNC application include:
- All income and living expenses
- All assets and their market values
- Bank statements for the last three months
- Provide proof of medical expenses
These documents will help you complete form 433, a statement of financial information required by the IRS. Form 433 gives the authorities an overview of your finances, which they can use to determine if you are eligible for "currently uncollectible" status. You must fill out detailed information and be prepared:
- Make a list of all the tangible and intangible assets you own (real estate, cars, stocks, etc.).))
- Determine a fair market value for all assets
- Track how much income was earned over the last three months
- Track how much has been spent in the last three months
- Report your three-month analysis of income and expenses and average them by category
Applying for uncollectible status with the IRS can be a daunting task, and with professional help you have the best chance of getting CNC for your account. Community tax's team of experienced tax professionals can represent your case before the IRS and help you find the best possible solution. Let our experienced professionals at the IRS help and guide you through a process that can otherwise become an overwhelming ordeal. Contact us today to find out how we can help you solve your case and to learn how feasible financial freedom can be.