In these unfortunate financial times, it is not uncommon that taxpayers cannot pay their back taxes nor can they even afford to make monthly payments. In these types of cases, if properly qualified, the IRS will allow a taxpayer’s account to become “Currently Not Collectible” (CNC). This is also known as Status 53.
What does it mean to be in a currently not collectible status?
If you are placed on CNC status, all collection activities, such as tax liens and levies, must cease. Essentially, the IRS will not require any payments from you and will leave you alone until your financial situation improves. However, your tax debt does not go away. Penalties and interest continue to accrue, making this generally a temporary situation.
While on CNC status, the IRS will issue you a yearly statement reminding you of your current outstanding tax balance. To stay eligible for CNC status, you must stay current on your tax returns. If you file and are due a refund, the refund will be applied to your outstanding tax debt.
How long can you be considered currently non-collectible?
Once you in a CNC status, your tax returns will be monitored for any changes in increased income. If your income changes, giving you the ability to pay, you will be removed from CNC status and will be asked to fill out a new financial statement to see if you are able to make monthly payments.
According to the law, you may remain in a CNC status for at least one year. However, if you do not have the ability to pay and there are no significant changes to your income, you can feasibly stay on a CNC status until the IRS statute of limitations expires. If this is the case, your debt will be forgiven.
What can you do once in a currently not collectible status?
If you have successfully been put on a currently non-collectible status the best strategy is to immediately have your tax attorney negotiate an offer in compromise (OIC) to permanently solve your tax problem by settling your tax debt for less than you owe. Generally, you will qualify for an OIC if you have already qualified for CNC status, but not always. However, while in CNC status, it is best to do nothing if you are close to the statute of limitations expiring. The basic rule is if the IRS cannot collect on the tax debt within the 10-year statute of limitations, then the tax debt will be forgiven.
How do you qualify for currently non-collectible status?
The IRS requires that you provide a detailed financial picture of your monthly income and expenses, in addition to what assets you may have. What you need to show is that you have no money left over each month after paying your “necessary” living expenses. You will also have to prove to the IRS that you do not own assets that can be liquidated or sold in order to make a lump-sum payment.
The following is a list of the types of information you and your tax attorney should gather for the IRS before requesting to be put on CNC status:
- Paycheck stubs for the past month
- Statements for all other monthly income, including pension benefits, spousal or child support, and Social Security benefits Property tax statements for all property owned, date of purchase and purchase price
- Utility bills, such as electric, gas, water and phone/internet
- Monthly mortgage bill or lease
- Most recent credit card statements
- Tax bill, mileage and monthly payment for each car owned
- Statements of owned assets, like stocks and bonds
- Receipt or bills for any other monthly expenses, such as food, child care, medical expenses and spousal or child support payments
How hiring a tax attorney can help
An experienced tax attorney can quickly determine whether you will qualify for CNC status. A tax attorney will have extensive knowledge of the many complex tax laws and will submit the proper paperwork and protect you by successfully negotiating CNC status with the IRS.
The San Diego Tax Attorneys at Delia Law have many years of IRS tax relief experience and will competently represent you before the IRS. We will immediately assess whether you qualify for currently non-collectible status and will assist with any aggressive collection attempts by the IRS. Please call for a no-cost tax attorney consultation at (619) 639-3336. We look forward to helping you.
This blog post is not intended as legal advice and should be considered general information only.