Each year, almost 30 million taxpayers file a return and owe taxes. Most people pay the taxes when they file, but about 4 million to 5 million taxpayers are unable to pay. About 3 million of these people set up payment plans with the IRS. These payment plans are known as installment agreements, and are paid on a monthly basis. So what about the others who can’t afford to pay at all?

Currently Not Collectable Status: Do You Qualify?

The IRS Currently Not Collectible (CNC) status is a temporary status granted to taxpayers who are currently facing extreme financial hardship which prevents them from being able to make payments towards their outstanding tax liabilities.

To be eligible for the CNC status, the taxpayer needs to prove to the IRS that they are currently unable to pay their taxes due to financial hardship. Reasons for financial hardship are as follows, but not limited to: loss of a job, disability, and medical expenses.

When a taxpayer is granted the CNC status, the IRS will temporarily suspend all collection activities  against the taxpayer. This includes wage garnishments, bank levies, and seizure of assets. However, CNC is not a permanent resolution. The tax liability continues to accrue interest and penalties until the tax debt is paid in full.The IRS will continue to review the taxpayers financial situation periodically to determine if the taxpayers financial situation has improved and if they are able to begin making payments towards their outstanding liabilities.

Qualifying for CNC: Documenting Your Financial Situation

Here’s the tricky part. If a taxpayer is in need of a CNC status, they must prove to the IRS that they can’t afford to pay in full or make monthly payments.

That means they will have to document their financial situation for the IRS.

  • The IRS will look at a taxpayer’s bank accounts, such as a savings account, to see if they have enough funds to pay their taxes and pay for necessary living expenses.
  • If a taxpayer doesn’t have any assets(such as a car or property) to pay the debt, the IRS will want them to document their average monthly income and necessary living expenses. The IRS is looking to see if the taxpayer is able to pay with an installment agreement.
  • The IRS may also ask a taxpayer to file a financial statement known as Form 433. They will require the taxpayer  to prove their monthly income, with pay stubs and bank deposits. They will also require the taxpayer to prove their monthly living expenses, with receipts.

Here’s the catch: The IRS can set limits on your expenses. For example, if a taxpayer’s car payment is $1,200 a month, the IRS will limit it to $497. It is important to keep in mind that the IRS has their set standard of living costs, anything above the IRS’s guidelines must require proof.

Don’t ignore the issue

Many times, people choose to ignore their tax liabilities and believe that the IRS will ignore the issue, too. It’s true that the IRS can put taxpayers into CNC status if the IRS cannot locate them, but those taxpayers will be open to federal tax liens, bank levies, and wage garnishments.

The only way to make sure that the IRS doesn’t take these measures to collect when you can’t pay your taxes is to request a CNC status, if you fit the criteria.

Details you need to know about CNC status

  • The IRS will take any refunds in future years until the tax liability is paid off.
  • The IRS will usually file a federal tax lien if a taxpayer owes more than $10,000.
  • CNC status is not permanent. Under this status, The IRS will review the taxpayers financial situation every year to see if they can afford to pay their taxes again. If their financial situation has changed, the IRS may remove them from the CNC status and ask for new terms. 
  • If a taxpayer’s situation stays the same, the IRS will likely “write off” their taxes, penalties, and interest owed after 10 years. This rule is called the collection statute of limitations. At the end of 10 years, the IRS can no longer collect unless you have extended the collection statute by some action.

What’s Next?

CuraDebt Tax Can Assist With All Tax Needs. If you are a taxpayer who is experiencing financial hardship, consider the CNC status. You may even want to consider an IRS Offer In Compromise(OIC) if your circumstances allow you to settle your tax debt with the IRS. If you’re not sure how you can pay your tax bill, contact us today to better understand your options. Our team of tax professionals can help you understand which solution you qualify for and work with the IRS to achieve it. Call us toll free for your free consultation. 1-877-999-0486

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