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The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law

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cnc status, tax debt, Chicago Tax Attorneys"Available for a limited time only," the advertisements said, "The IRS' CNC Tax Program can help keep you from paying the IRS if you can't afford it!"

You may have heard an advertisement like that on the radio or TV in the past few years. But the truth is that the Currently Not Collectible moniker isn't a 'program;' it's a status that selectin taxpayers can be placed in by the IRS, if they are temporarily experiencing an extreme economic hardship. There is no 'limited time," – that’s a sales pitch. Put simply, the CNC status is a tax controversy in which the IRS marks your account as "this person is too poor to collect from." That status doesn't mean that you don't owe the money; it just means that you can't pay right now, so the IRS goes into 'observation mode' and waits for you to show signs of being able to pay. Here's an example scenario:

 

  1. You fall behind on your installment tax payments.
  2. The IRS detects that you've fallen behind, and they terminate your installment agreement.
  3. The IRS re-engages its normal process of attempting to actively collect via calling, sending letters, inviting you to their office, and/or visiting your home or business.
  4. You still cannot pay.
  5. The IRS begins enforced collections, meaning they attempt to garnish your wages, seize your bank accounts, file liens against identified assets.
  6. You realize that they're going to come after you relentlessly (they are the IRS, after all) and that you can't afford to live if they keep messing with your paychecks. So, you talk to an agent and you demonstrate that paying what you owe – even by monthly installments - would create a severe economic hardship, such that you will not be able to pay your electric bill or buy groceries for your family. Furthermore, if your delinquency involves some form of paperwork (i.e. a tax return that was never filed, or withholding that was insufficient to meet your tax burden), you must resolve that problem as well. Finally, you file Form 433-A or 433-F, along with all of the statements, receipts, and paystubs that prove your hardship.
  7. The IRS will attempt to work with you to find an Offer in Compromise or other method of collecting on the debt first prior to using the CNC status. If they can squeeze something out of you, that’s the oreferred mode.
  8. Assuming that fails, the IRS puts the "Currently Not Collectible" status on your account, and they wait. Note that penalties and interest still accrue during this time - you just don't have to pay those penalties and interest until you're out of hardship.
  9. While they're waiting, you still pay your current taxes as normal; you just don't have to pay on the delinquent taxes you owe. If you fail to file or fail to pay, the CNC is dropped and collection efforts resume.
  10. If, on the documents you're filing in order to maintain your CNC status, your financial situation shows that you're doing well enough to begin payments on your existing debt, the CNC status is removed and collection efforts resume.
  11. Most CNC statuses come with a 'follow-up date' upon which the CNC automatically expires and the IRS collection efforts begin again. It may be possible to get back into CNC status by re-requesting, and thus obtain a new follow-up date.
  12. Finally, if your account remains in CNC status for so long that the debt expires (10 years in most cases), the CNC status ends and your account normalizes without any payments made on the debt (or the interest or penalties that accrued associated with that debt).

This process is long, full of numerous potential pitfalls, and it's not that great of an option anyway, as you have to live a life of poverty in order to utilize it. The one positive to CNC status is the knowledge that there is a scenario in which the IRS allows you to live and pay your bills without taking your grocery money. If you are behind on back taxes and are currently in (or on the road to) CNC status, it is important to seek professional guidance to determine your best path forward. At Chicago-Kent Tax Clinic, we provide free consultations and low-cost representation from attorneys with in-depth experience working with the IRS and in private practice. To speak with one of our skilled Chicago tax lawyers, contact us today at 312-906-5041.

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