Currently Not Collectible
The basis of any negotiation for the IRS debt boils down to income and expenses and assets and liabilities. Being placed in uncollectible status does not, in itself, resolve your tax difficulties – it just delays them. You can be placed in an uncollectible status if your “reasonable and necessary expenses” (as defined by the IRS) exceed your household cash flow. In addition to your income, the IRS will also look to all the money you have in assets such as CDs, 401K’s, stocks, home equity, etc. They will take all that to the extent of the debt you owe.
Those that are good candidates for the Currently Not Collectible status are:
- those who can show that you have a lot of equity in the house that you live in but you are no longer making money and what you make is enough to keep you afloat.
- Those that are retired and on a fixed income like social security. If this is the case and your financial situation never improves, you may have resolved your tax problem forever. Your could remain permanently in this status and the IRS will ultimately close your case after the 10 yr statute of limitation runs.
- Some people just want time and some relief from the government hounding. Those who know they will be able to afford the debt later, but cannot currently afford to do so.<p></p>
The IRS will “request” that you provide it with financial information and compare this information with the IRS collection standards. If you fail to respond the IRS will likely “encourage” you to respond by pursuing enforced collection.
If you are placed in the CNC – Currently Not Collectible status no payments are required and the IRS will not use enforced collection, e.g., levy your bank account or garnish your wages, BUT may file a tax lien. For example, the IRS does not have to get a judge’s permission for a bank levy or a wage garnishment. They can show up at your house with a badge. You swear under oath and you sign under perjury.
Being placed in uncollectible status does NOT resolve your tax problem
The tax is still owed and interest and penalties continue to apply.
Uncollectible status is NOT (necessarily) permanent
While you are in CNC status, the IRS will likely contact you periodically (it could be just every two years) to update your financial information and see if you are able to pay the tax or enter into an installment agreement. Obviously, if your financial status improves and you can afford to pay monthly, the IRS will want to start collecting. If your income to expense ratio has not improved such as to indicate a monthly payment ability you can remain in uncollectible status.
Beware of Default
If you do not file a return or pay taxes incurred after being placed in uncollectible status the IRS will take you out of uncollectible status and may use enforced collection.
Possible resolution
If you remain in uncollectible status until the statute of limitations on collections expires, the taxes will no longer be owed.
