Although we all wish taxes were an expense we could remove from our annual obligations, unemployment or other extreme circumstances may leave you with no possibility of paying taxes at all. If you find that your living expenses leave you with little-to-no money left over to pay your tax bill, seeking Internal Revenue Service (IRS) Non-Collectible Status may be an option — especially if you are temporarily experiencing a financial hardship.
While the IRS will take several steps to get you to pay, such as sending collections notices and encouraging you to set up a payment plan, it usually will not force you to choose homelessness if you truly have no way of paying and take the initiative to work with it. Here’s what you need to know about Non-Collectible Status and what it means in the long run.
What Is IRS Non-Collectible Status?
IRS Non-Collectible Status is also known as “Currently Not Collectible (CNC) Status. “Currently Not Collectible,” or CNC, is a status you can request from the IRS. It is your opportunity to demonstrate your sources of income and your sources of reasonable, essential expenses and show that you simply cannot pay on your bill at this time.
If granted, CNC gives you breathing room to get back on track; when you request it, you’ll be given a certain level of income at which they’ll contact you to re-evaluate if you’re ready for a payment plan.
CNC is also a benefit to the IRS, albeit a small one; they are better off if they know that no amount of collections letters or calls will help you pay your debt, and it helps them recognize that wage garnishment threatens your ability to continue to feed, clothe, and shelter yourself and your family.
The IRS wants to use their influence to get payments from those who have the ability to pay their taxes, but doesn’t want to waste resources attempting to collect from you continuously if you really need some time to move out of a hardship situation.
Here are a few facts to keep in mind:
Who Qualifies for IRS Non-Collectible Status
Reasons to Seek Non-Collectible Status
Other Things to Know Before Applying for Non-Collectible Status
It is important to note that any tax refunds you may otherwise be eligible for during the period in which you are in non-collectible status will automatically be taken by the IRS until you finish paying off your tax bill. Tax bills that are excessively high may also have other ramifications, such as a tax lien being filed if you owe more than $10,000.
How Do I Apply for IRS Non-Collectible Status?
Step 1: Gather Your Financial Information
Step 2: Fill Out Your Financial Statement
Step 3: Analyze Your Financial Statement
Step 4: Submit Your Financial Statement
Finally, submit form 433-A or Form 433-F to the IRS. Although you can mail this form in, you can usually get a quicker decision by calling the IRS directly at 1-800-829-1040 or having a tax professional call this number for you to discuss the information included in this statement.
Available Resources Related to IRS Non-Collectible Status
The IRS may have complicated rules, but there are a variety of resources to help you understand your situation and make the best of it.
First, the IRS publishes The Rights of the Taxpayer, which outlines the ways in which you can advocate for yourself and work with your accountant to get through difficult or frustrating tax-related situations.
Second, the IRS transparently shares this document about The Tax Collection Process. Collections calls and letters are stress-inducing, but they shouldn’t be ignored, since that will only make them multiply. Instead, learn about the circumstances that got you here and see the ways to move forward.
Third, the IRS does have an appeals process if you believe something has been handled incorrectly. The process can be time-consuming and confusing, so you’re better off with a tax professional on your side to help you know how solid your case may be.
Pros and Cons of Applying for CNC Status
There are substantial advantages and disadvantages to having CNC as your status:
Advantages of CNC Status
Disadvantages of CNC Status
Get Help Applying for Currently Non-Collectible Status
At Silver Tax Group, we understand that unemployment and other extreme circumstances may affect your ability to pay taxes during a typical year.
We are here to discuss your options if you are having trouble paying your taxes, and we can assist with applying for IRS Non-Collectible Status if your current financial situation requires it.
Contact us today to learn more about whether seeking non-collectible status is the best option for you.