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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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installments, Illinois tax debt, Chicago Tax AttorneysIf you have a tax controversy with the State of Illinois and owe more than you are able to pay, you can apply for an installment payment plan through the State's website. The Illinois Department of Revenue is significantly less transparent about its processes than the IRS, and it accepts significantly fewer installment payment plan requests.

Filing Your Installment Payment Request

The form you need in order to petition for an installment plan is Form CPP-1. If you owe more than $5,000, you will also have to fill out either Form EG-13-I (for an individual), or Form EG-13-B (for a business).

What Happens Next?

Well, that's the frustrating part…it can be difficult to say for sure. Someone in the Illinois Department of Revenue office looks over your request, and he or she decides whether or not they are going to work with you. There is no publicly-available information about precisely how that decision is made, but we do know there are certain factors that will cause the state to refuse your request:
  • If the Illinois Department of Revenue decides you can actually pay the full amount, it will require you to do so;
  • If the Department decides you could pay the full amount if you secured a loan for that amount, it will require you to do so (essentially a payment plan, but you pay a bank rather than the State, and Illinois gets its money up front);
  • If the Department decides you can't really be trusted to pay installments, it may honor your request and put a lien on your property and assets that it has the right to exercise if you don't make every payment on time and in full. This can wreak havoc on your financial reputation;
  • If your request is, in any way, improperly drafted, the Department may return it to you and ask for further information, or it may simply deny it out-of-hand; or
  • If the Department decides your word is good enough, it might just honor your request without a lien…but even if it does, the Department reserves the right to add a lien to the arrangement at any time, for any reason, as it sees fit.

How to Maximize Your Chances of Acceptance

Because the precise mechanisms of the decision-making process are not fully known, the best advice available is fairly basic. First, offer as large of a down payment as you can afford (this is good practice in the long run anyway, as interest still accrues on any remaining balance as you make payments) – 20 percent or more is recommended. Second, make your payments as large as you can tolerate, but do not exceed a 24-month arrangement. The closer to your pain point you get, the more likely the Department is to recognize an honest effort and be willing to work with you.  And if an installment arrangement with the State fails, consider filing an offer in compromise… For further information on State of Illinois installment agreements or any other IRS or Illinois tax issue, contact one of the skilled Chicago tax lawyers at Chicago-Kent Tax Clinic. To schedule a free consultation, call our office today at 312-906-5041.

installment, IRS, Illinois Tax Law AttorneysMany people, for fairly obvious reasons, are simply unable to pay the IRS everything they owe in one lump sum and need another tax relief option. It's just not reasonable to expect someone to pay tens of thousands of dollars at once; even Wall Street tycoons don't normally keep that much cash sitting around. So the IRS offers the option of monthly payments, or "installment agreements" as a way of repaying your tax debt over time.

There are basically three variations on the IRS installment concept: Guaranteed, Streamlined and Discretionary agreements.

Guaranteed Installment Agreements: The Easiest Option

If you don't owe the IRS too much, and you can make a reasonable monthly payment, you probably qualify for a Guaranteed Installment Agreement. To qualify, all of the following must be true:

  • Your total IRS debt (not including penalties and interest) is less than $10,000;
  • The debt can be paid off in three years or less of equal monthly installments; and
  • You have no unfiled tax returns.

The big reason you want a Guaranteed agreement if you are eligible: you do not have to submit the invasive financial disclosure statement to the IRS. In addition, in most cases the IRS will not file a Notice of Federal tax lien on your assets. A tax lien can mess up your credit and have the IRS on your back for years to come, so you want to avoid this outcome if at all possible.

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OIC, Offer in Compromise, Chicago Tax LawyersAn Offer in Compromise (OIC) is essentially a proposal to the IRS asking them to accept less than what you owe. Along with the required OIC forms, you should also submit evidence demonstrating that your offer is the most the IRS can expect to collect from you within a reasonable amount of time. When you submit an OIC, there are three possible results:

  1. Acceptance: You win! They've decided your offer is reasonable given your circumstances. This is…let's just say…"pretty rare" unless you know exactly what you're doing. Historically, offer acceptance has hovered around the 10-20 percent rate;
  2. Rejection: You lose! They've decided your offer isn't good enough; or
  3. Return: You failed! There are a number of reasons you could get a return of your offer.

If Your Offer is Rejected

This seems like pretty bad news, and it's also by far the most common result of an Offer in Compromise. There was a short time recently when OICs seemed to be a bit easier to get through the system. However–due to recent budget cuts and internal policy considerations–the IRS is getting even more (and some would say cynically) "difficult" to convince.

Rejection of an offer comes two ways:

  1. The IRS concludes that there is a "full ability to pay"; or
  2. The IRS comes back with a counter-offer of a higher, acceptable amount to compromise the debt.

Is there a path forward from here if you disagree with either these alternatives? Absolutely; there is an internal appeals process in place. Within 30 days of getting the rejection notice, you can file an appeal in which you clarify precisely why the IRS should have accepted your OIC and what specific errors in analysis they made. We regularly help clients with filing appeals for both types of rejections.

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