What is uncollectible status and why consider it?
A taxpayer who is experiencing financial hardship and is struggling to pay for basic living expenses, qualifies for Currently Not Collectible status. In other words, when a taxpayer has no available equity in assets and his or her income is not sufficient to cover their IRS allowable expenses, the taxpayer would be deemed “uncollectible”, or “Currently Not Collectible” (CNC). When a taxpayer is "uncollectible" IRS holds off levy action against the taxpayer's income or assets.
A taxpayer must show proof to the IRS that paying the tax debt would cause them severe financial hardship. To get the CNC status, either you or your tax representation professional can contact the IRS and provide your financial information, in writing or over the phone, by completing the Collection Information Statement. The IRS will ask you to provide proof of your income and expenses. If the CNC request is made on the phone, and you have your financial information readily available, the IRS usually gives you a preliminary decision immediately.
CNC status is not permanent. IRS will continue to review your financial situation to see if it improves. Technically you still owe the money, and so interest and penalties will continue to accrue on the outstanding debt. So why consider CNC status? It will help you buy time with the IRS Collection Division so that you can get past the current year and get yourself organized to file back taxes and pay estimated taxes. CNC status also helps ride out 3 year period wait to make you eligible for offer in compromise under certain circumstances. IRS has 10 years to collect taxes from the date of assessment. After the 10 year period has expired the tax debt including penalties and interest just goes away. So if the 10 year period is going to expire soon, by filing CNC you can hold off collection action and allow the time on the statute to run.
If you are experiencing financial hardship call us at 602-904-6535 or email me at email@example.com. We will assess your financial situation and determine if you qualify for Currently Not Collectible status.
Vani Murthy, CPA | 11/21/2020