Many taxpayers find themselves in a situation where they are behind on their federal income taxes, but do not currently have the ability to make any payments towards their past due tax liability. If your find yourself in such a situation, you may be able to get relief from IRS enforced collection by placing your account into Currently Not Collectible Status (“CNC”).
The IRS typically uses CNC status to protect taxpayers from undue hardship that can be caused by collection activity.
Before the IRS will place any collection account into CNC, it will take a close look at the taxpayer’s financial situation and their ability to make payments. The first factor the IRS will consider is the taxpayer’s ability to make regular payments towards their liability. An IRS collections officer will determine the taxpayer’s monthly income from all sources and compare it to their monthly allowable expenses. Allowable expenses are those reasonable expenses a taxpayer must incur every month to provide for the basic health and welfare of their family. If the allowable expenses exceeds, or come close to exceeding the amount of the income, the taxpayer may qualify for CNC relief.
The IRS will also look to see if there any assets the taxpayer could use to pay the liability. Examples of assets the IRS may look at are: home equity, secondary vehicles, cash in the bank, retirement accounts and other assets that could be converted into cash. If the IRS determines that there is no cash available from these assets, or that accessing the cash will cause an undue financial hardship, they may place the tax collection account into CNC status.
Given the current focus on collecting past due taxes, the IRS is reluctant to place collection accounts into CNC status. They will engage in an in-depth negotiation and require documented proof of all income, expenses and assets before they will actually offer CNC relief.
As with all matters before the IRS, you are entitled to professional representation when attempting to have your account placed into Currently Not Collectible Status. If you are concerned about preserving your legal rights, you may want to contact a tax professional to assist you with your past due tax liability.