Currently Not Collectible (CNC)
When a taxpayer has no way to pay their tax debt, and there is no way the IRS can collect the taxes owed the conventional types of IRS tax resolution, they can request a currently not collectible, or CNC, status for their case.
When a taxpayer’s financial situation takes a turn for the worst, and they don’t have enough money to pay for the daily living essentials such as rent and food the additional financial burden of tax debt can become unbearable. Most taxpayers aren’t aware that there is a way to stop IRS from trying to collect on the tax debt? The first step is to see if they qualify as “currently not collectible” with the IRS.
The IRS cannot collect any penalties or taxes if:
- The taxpayer’s wages only support their essential living expenses and there is nothing left for the IRS to garnish
- The taxpayer has no assets that are worth levying. The IRS can’t seize assets if a taxpayer has less than 20% equity or when the costs to seize and sell the asset is more than the current value of the equity.
When the IRS determines that a taxpayer’s account is uncollectible, they must stop the collection process and wait for the taxpayers financial position to improve so that = another form of tax resolution can be applied. Penalties and interest will both continue to accrue. The taxpayer will also be required to give the IRS financial statements every year so the IRS can determine they remain currently not collectible.
When a taxpayer’s financial statements demonstrate that their financial situation has improved, the IRS collection process resumes. The exception is when the 10-year back tax statute of limitations expires while a client’s case is in a currently not collectible status. When this happens, the taxpayer’s debt becomes permanently not collectible.
What is Currently Not Collectible
Currently Not Collectible, also known as CNC, suggests that a taxpayer cannot pay their tax debt. The taxpayer has to prove they are experiencing serious financial hardship. This would mean that they don’t even have the option of liquidating their assets and cannot make monthly installment payments to the IRS for their back taxes. The IRS can in these circumstances declare that taxpayer’s account is currently not collectible.
The taxpayer is required to submit validating documentation along with very detailed financial forms for exhaustive examination by an IRS agent. After the IRS declares that the taxpayer is currently not collectible, they are required to stop all collection activities such as bank levies and wage garnishments. The IRS will send the taxpayer annual statements to remind them of the amount of tax that is still owed.
When the IRS has been unable to collect the tax debt within a 10-year period, the tax debt expires and is permanently uncollectible.
How to Qualify for Currently Not Collectible Status
The IRS uses a formula to decide when a taxpayer doesn’t have enough money remaining after covering their basic living essentials. “Living Essentials” may not mean the same thing to a taxpayer as it does by the IRS’s definition. When a taxpayer tries to inflate their expenses artificially, the IRS immediately invalidates the taxpayer’s argument. This process is usually why taxpayers opt to use a qualified tax negotiation company such as Protaxion as the technicalities are often overwhelming.
Protaxion Can Help with Currently Non Collectectable Negotiations
Tax consultants at Protaxion are experienced enough to evaluate a taxpayer’s individual situation and figure out if currently not collectible is the best tax resolution path. Our tax experts only place a client in currently not collectible status after they have been verified to be a fit.
Best Currently Not Collectible Professionals
A currently not collectible status provides a taxpayer with some space to regain their financial footing. This includes finding a workable tax resolution plan moving forward. Currently non collectible only defers payment and penalties and interest do continue to accrue on the taxpayers account. CNC does not erase a tax debt. This is why we recommend that taxpayers consult with a Protaxion tax expert to determine the best course of action.
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Having a team of dedicated tax professionals on your side is a powerful position to be in when managing a tax matter with the IRS, and we look forward to helping to put you in a winning position to succeed.
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