Hard-working, well-meaning taxpayers can fall into trouble with the IRS due to circumstances beyond their control. They suffer a serious illness, or lose their job, or a poor economy hits their business, leaving them without funds to pay their taxes on time.
If you’re experiencing financial hardship, it is possible to get the IRS to agree to stop it’s collection activities. A primary means to achieve this is known as “Currently Not Collectible” status. The tax term “currently not collectible” refers to the fact that a taxpayer simply does not have the ability to pay his or her taxes.
A Personal Story
Perhaps you can relate to the situation Stan and Jill faced. Stan worked for several years in IT, but lost his job during the 2009 recession. He was out of work for months, falling behind on his mortgage, and using credit cards to put food on the table. The increased stress caused his rheumatoid arthritis to flare up, resulting in unpaid medical bills. He finally landed temporary work on a “1099” basis as an independent contractor, helping the family get caught up on some bills. But when tax time came, he was unprepared for the additional taxes of ‘self-employment’. He couldn’t pay it all on time, got hit with interest and penalties, and all this over a 5 year period has now grown to a total IRS debt of just under $30,000.
What does a taxpayer do to fix this situation?
In working with Stan and Jill, we determined that Currently Not Collectible (CNC) status is the most appropriate solution for their specific situation. CNC status puts IRS collection efforts on hold. It protects you from bank levies, wage garnishments, threatening letters and collection enforcement.
Where do you begin to obtain CNC status? You start by providing the IRS with personal financial information that documents your hardship. The Collection Information Statement includes your bank accounts, financial assets, monthly income and expenses.
In the case of expenses, the IRS has set standard amounts for monthly food, clothing, housing, and vehicle expenses. If you are above these amounts the IRS will not consider the extra expense and instead ask that you adjust your lifestyle to within the set standards.
For this reason, it can be to your advantage to seek professional IRS Representation from an Enrolled Agent who is (1.) familiar with IRS standards and (2.) has been successful in obtaining CNC status for other taxpayers going through financial hardship.
Is this a permanent solution–or just temporary?
To the IRS, currently not collectible is “putting a debt on the shelf”. In other words, they take your case out of their active collection inventory (shelving it). But it’s not a permanent solution; you will typically be required to resubmit updated financial information every two years, at which time your status will be re-evaluated.
In many cases, however, taxpayers who have been granted non-collectible status remain there until the time frame the IRS has to collect (10 years) expires, after which the IRS debt is permanently removed and forgiven.
ANCHOR ON THIS: Currently Not Collectible status puts IRS collection activity temporarily on “hold”, and allows you to live your life without IRS intrusions into your bank accounts, wages and property. But when combined with the expiration of the 10 year statute of limitations on collection, it can become a legitimate action plan toward put your IRS problem behind you, permanently.