Q: How Does "Currently Not Collectible" Status Affect IRS Collection of Back Taxes?
A: If you owe back taxes but are not able to pay anything at all as a monthly installment, or you can't get to the equity in your assets, if any, you may be able to obtain tax relief by having your account declared by the IRS "currently not collectible" (CNC). The IRS often refers to this as a "hardship" status, and the taxpayer must present incontrovertible evidence that he or she has no ability to pay the back taxes owed at the present time.
This evidence is submitted through IRS Form 433-F, (or Form 433-A if the debt is considered substantial) the Collection Information Statement (CIS), which details income, assets, and expense information. Any taxpayer who contemplates this tax relief option should immediately seek tax help from a Certified Tax Resolution Expert who is best able to advise whether this is the proper option and, if so, can expertly prepare the CIS.
CNC status is considered on an individual basis. In the right circumstances, CNC can indeed provide tax relief breathing room. For example, even if the CIS does show that there are assets or income that potentially could be levied, the IRS may exercise "reasonable forbearance" if the collection of those assets deprives a taxpayer from essential living expenses. Factors such as health and age may also be considered.
While this declaration does temporarily suspend collection action by the IRS, it does not forgive the debt. The IRS may still file a tax lien on future assets before it declares any account CNC, and interest and late payment penalties may still accrue. CNC tax relief can last the full 10-year term before the Collection Statute Expiration Date, but the IRS can resume collection action any time before the statutory expiration date. And, if a taxpayer can reasonably pay a minimum of $25 per month, the IRS will require the taxpayer to enter into an installment plan before it will place the account in CNC.
If the IRS declares an account CNC, the taxpayer will receive a Status Code 530, and the decision will be documented on Form 53 (Report of Currently Not Collectible Taxes). If the account is still deemed CNC at the statutory expiration, the IRS cannot further pursue tax debt payment. Remember, you don't have a CNC agreement until the proper codes (530) are input into your tax transcript by the IRS. The average lay person does not have this knowledge and thinks he/she has a CNC agreement and then unknowingly gets levied. This is why you require expert tax representation by a qualified professional.
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