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Thursday, July 5, 2018

IRS Currently Not Collectible Status

You need a fierce advocate on your side when it comes to any tax issue. Renee Sieradski, EA has received extensive training in the field of IRS Representation, with over 18 years of experience as a practicing Tax Professional, and specializing in Multi-State Taxation and the Real Estate Industry. Her expertise is in resolving tax debt, with a focus on 1040, 941, 6672, and 1120 tax liens. 602-687-9768 www.phoenixtaxhelp.com. Email renee@phoenixtaxhelp.com.

A very powerful tool for getting the IRS off your back is Currently Not Collectible (CNC) status. The IRS recognizes that you maybe in a financial condition that renders you unable to pay anything on your taxes.

When I represent taxpayers who are either insolvent or are having major cash flow issues, the Currently Not Collectible Status is an option that makes the most sense. If you have negligible assets subject to levy enforcement by the IRS and have no income beyond what is absolutely necessary for you to live, the IRS may determine your liability is currently uncollectible. Currently Not Collectible status defers collection action under the undue hardship rule. If you are one of these uncollectible cases, the Revenue Officer assigned to your case will remove your case from active inventory until your financial condition improves. Currently Not Collectible Status is generally maintained for about one year. There are many reasons the IRS may close your case as uncollectible.

These include:

  • The creation of undo hardship for you, leaving you unable to meet necessary living expenses.
  • The inability to locate any of your assets.
  • The inability to contact you.
  • You die with no significant estate left behind.
  • Bankruptcy or suspension of business activities with no remaining assets.
  • Special circumstances such as tax accounts of military personnel serving in a combat zone.

Do keep in mind if you are in Currently Not Collectible Status, penalties and interest will continue to accrue on your tax liabilities.

Before closing your case for the reason of undue hardship, the IRS will require a financial statement from so they can review your finances. The review is similar to the review for an Installment Agreement request — both are similar to a mortgage application. You will be required to provide financial documentation such as bank statements, copies of mortgage statements and car payments, pay stubs, etc. If your assets are negligible and your net disposable income is negligible, you’ll most likely to be able to obtain a CNC status.

The IRS will periodically re-examine your finances to see if your financial condition has improved to the point some payment can be demanded. The review will occur about once a year and you must then complete a new financial statement. The IRS may question you by phone or in person or they may simply send you the form and request that you return it by mail.

As with all information you give the IRS, make sure what you say is absolutely truthful. The IRS may also monitor your financial condition by computerized review of your tax returns. For example, the IRS computers may flag your return if your reported gross income exceeds some pre-established amount. Remember, the IRS only has 10 years from the date of assessment to collect delinquent taxes; once the statute expires, so does your liability.

Millions of Americans have remained in CNC for years and completely avoided having to pay their back taxes. Obviously, these folks could not title assets in their own name or have significant income available for IRS levy. Still, many of these uncollectible cases enjoyed relatively comfortable lifestyles. If you maintain no assets in your own name, you have a small income, and expect your financial situation to continue, then remaining in CNC status may be the most practical remedy.

However, if you do not intend on remaining uncollectible until the statute of limitations expires, or don’t want the tax liability hanging over you, you may want to consider an Offer in Compromise while your financial situation isn't so great.

On to Recovery — Powerlessness

In my personal life, I’m back on Step One in my codependency 12 step group. My sponsor wants me to work on powerlessness. I thought I understood powerlessness, however, as I work through the workbooks and questionnaires, I feel as if I am seeing powerlessness with fresh eyes. No matter what

I do, or say to an addict, my words won’t change their addiction. I’ve realized a part of me still wants to believe I have power over people. I am grateful for my sponsor and the 12 steps. I am grateful for my Higher Power. I understand now why I needed to have denial all these years while I worked through pieces of  past trauma. My brain was protecting me from overload. Now it is time for me to accept my powerlessness. It’s a huge part of my life that I am challenging the work is difficult but the rewards will be even greater.