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IRS HARDSHIP - CURRENTLY NOT COLLECTIBLE (CNC)
A tax relief option that doesn’t get much attention from tax professionals is IRS Hardship - Currently, Not Collectible” (“CNC”) status, which is a status that your account with the IRS may grant when you cannot currently afford to pay a tax debt. Many tax professionals do not pay a lot of attention to the IRS Hardship issue because tax relief companies are mainly concerned with getting large fees. If someone is qualified to be placed into Currently Not Collectible status greedy tax relief companies do not want to bother with someone with limited income.
The tax professionals may use the IRS Hardship program prior to submitting an Offer in Compromise. We may use IRS Hardship to stop an IRS levy. Our tax attorneys may also use Currently Not Collectible to run out the Statute of Limitations.
In order to obtain CNC status, a taxpayer must request it, and unfortunately, despite the fact that the IRS has a form for seemingly everything, there is no form to fill out to obtain IRS Hardship status. Should you attempt a "Do IT Yourself" call to the IRS main number, good luck with that.
Before approving your request to halt enforcement, the IRS may ask you to complete a Collection Information Statement (Form 433-F, Form 433-A, or Form 433-B and provide proof of your financial status (this may include information about your assets and your monthly income and expenses)).
Being placed into Currently Not Collectible status is not a settlement. It is a "hold" on enforcement action. You need to be aware that, if the IRS does agree to a delay in collecting from you, your tax debt will increase because penalties and interest are charged until you either pay the full amount or the Statute of Limitations runs out.
Also, every 12 to 18 months, the IRS may again review your ability to pay, and they may also file a Notice of Federal Tax Lien to protect the government’s interest in your assets. If CNC status is implemented, §6343(e) of the Internal Revenue Code also authorizes the IRS to release a levy concerning an account that has been determined to be CNC.
The decision to place a taxpayer’s account into CNC status is made by reference to Internal Revenue Manual (“IRM”) 5.16.1 (https://www.irs.gov/irm/part5/irm_05-016-001r). The IRS uses procedures outlined in Treas. Reg. § 301.6343-1(b)(4)(ii) for determining IRS hardship. That regulation provides a non-exclusive laundry list of factors that the IRS will use in determining CNC status, including:
1. The taxpayer’s age, employment status, and history, ability to earn, number of dependents, and status as a dependent of someone else;
2. Allowable Expenses are the amount reasonably necessary for food, clothing, housing (including utilities, home-owner insurance, home-owner dues, and the like), medical expenses (including health insurance), transportation, current tax payments (including federal, state, and local), alimony, child support, or other court-ordered payments, and expenses necessary to the taxpayer’s production of income (such as dues for a trade union or professional organization, or child care payments which allow the taxpayer to be gainfully employed);
3. The cost of living in the geographic area in which the taxpayer resides;
4. The amount of property exempt from levy which is available to pay the taxpayer’s expenses;
5. Any extraordinary circumstances such as special education expenses, a medical catastrophe, or natural disaster; and
6. Any other factor that the taxpayer claims are relevant to receive CNC status.
Keep in mind that CNC Status is not permanent, and it does not mean that the tax debt will simply go away. Like "everything IRS," CNC is very confusing for the uninitiated. If you receive IRS Hardship and owe $10,000 or more, you more than likely could settle with an Offer in Compromise. An OIC will settle a tax debt.
CNC only results in a temporary delay in collection activity but the time available for the IRS to collect a tax debt continues to run out. The IRS may run out of time to collect. Also remember, as noted above, that CNC Status does not prevent either interest or penalties from accruing, nor does it prevent the IRS from filing a “Notice of Federal Tax Lien”. In fact, IRM 18.104.22.168(3) generally requires that a Notice of Federal Tax Lien be filed on accounts being reported CNC when the aggregate unpaid balance of assessments equals or exceeds $10,000.00.
Although not ideal, sometimes taxpayers need a breather from often aggressive collection efforts (IRS Levy - Tax Levy), and CNC status may provide a tax relief solution for you.
For more information, give our team a call. It's free. There's no obligation.