What is a Currently not collectible Status?
When a taxpayer or business falls behind in paying its taxes to the IRS, or by not filing returns, or even both situations, and you have considerable hardship. The IRS will attempt to collect those taxes. They will send notices, call you, and may even visit you at home or at work. If those don’t work, then they will begin the enforced collection process by garnishing wages, seizing bank accounts and recording liens on any property (Notice of Federal Tax Lien) that you own. This notice will also show up on your credit report.
If the IRS ceases collection activity when they decide a person is suffering financial hardship, they then place you in a special status called “currently not collectible”.
This only defers the tax payments and is not a resolution to the tax debt problem. While deferral may sound great, it really is not a good solution in most circumstances. The interest and penalties continue to accrue (these will be substantial) in addition to the original amount owed, and any future tax refunds will be applied to that debt. Your property will continue with a lien, so if you decide to sell the property, any equity you may have will all go toward the IRS back taxes plus interest and penalties.
Don’t wait for the IRS to take the first step in the collection process. This puts you at a disadvantage. At TaXectera, we will look at whether an offer in compromise or installment agreement is feasible, while that is ongoing, the IRS may agree to postpone any further action until this has been determined. If the offer in compromise is not possible, and the IRS puts you on CNC status, they suspending all collections and enforcement activity, and release any wage levy because the account is reported to the IRS.
CNC doesn’t resolve the situation, but allows TaXectera to work with you to resolve the tax liability problem by looking at your tax returns and filing amended returns if needed, an audit reconsideration.
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Currently Not Collectible Statute of Limitation
Once placed in CNC, a code is marked on your case as to what you income is, and your anticipated ability to pay at a certain income level based on current rent, utilities, groceries ect. So for example, if that amount is determined to be $35,000, when you file your tax returns, the IRS system will pull your file for review. If you are now making $38,000 it will then know that you are making some additional money above what it costs to live. At that point, you case will be triggered for review from the CNC status and you will be expected to start paying the amount owed to the IRS.
If the IRS allows the case to be closed, and you fail to file a tax return in the future, it will automatically re-open and active the collection status, or if you accrue a new tax liability, and as described above, that your financial situation changes sufficiently to allow payments to be made against the tax debt. In some cases, they will just tag the case to reopen it or do a followup within a certain period of time, and can be sent back to collection anytime.
As a practical matter, your tax attorney needs to be told what that closing code is, so you know what income level will trigger a followup from the IRS.
Contact TaXectera today at 855-646-9570 for a free consultation to discuss Currently Not Collectible and any other questions you have regarding your tax debt problem. Tax Debt Help is just a phone call away.. call now…
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