If you have no assets and you can’t pay your current living expenses – you’re too poor to pay your tax debt – you can get the IRS to declare you currently not collectible. This will suspend all IRS collection activities, including levies and garnishments. The taxes are still owed and continue to accrue interest, but you have some breathing space. More importantly, the ten year statute of limitations continues to run, so you may be able to simply wait out the IRS and not have to pay back your tax debt at all.
Currently Not Collectible (CNC) is the designation assigned to taxpayers that cannot resolve their tax debt without incurring undue financial burden. If your account is placed in CNC status, it means the IRS cannot currently collect from you – or levy your assets or income – until your financial situation improves.
Keep in mind however, that while the IRS must cease all collection and enforcement activity, it will continue to charge interest and penalties to your account, and may arrange to apply any future tax refunds you are owed to your unpaid debt.
Furthermore, regardless of whether your account is in CNC hardship status, in many cases, typically those with a balance due of over $10,000, the IRS may file a Notice of Federal Tax Lien (NFTL). An NFTL can affect your credit rating, and impact your ability to sell your property or other assets.
Does CNC Status Mean I Don’t Ever Have To Pay My Tax Debt?
No. CNC status is not a permanent solution, and your tax debt is not forgiven. Your tax accounts remain in CNC status only as long as you cannot afford monthly payments. The IRS can continue to try to collect from you in the future, and will review your accounts annually to see if your ability to pay changes.
For example, let’s say the IRS closes your case as CNC at $50,000. If in the future your annual income exceeds this amount, the IRS will deem your financial situation has changed and you’re now able to pay your tax debt. Accordingly, your case will be reactivated and sent back to collection.
The IRS may also designate a follow-up date, reactivating the case on such date, and sending it back to collection regardless of any other factors. If at that time the IRS determines your ability to pay has improved, it can again commence its collection efforts.
What’s more, if you fail to file a tax return or continue to let back taxes accrue, which delinquencies can revoke your Currently Not Collectible status, the IRS can automatically re-open your case for collection.
How Long Does The IRS Have To Collect Taxes From Me?
The IRS can attempt to collect your taxes up to 10 years from the date they were assessed, after which time the taxes are no longer enforceable against you.
It’s worth noting that this 10-year period can be suspended in certain cases. For example, if the collection of taxes was delayed by the filing of an Offer in Compromise or bankruptcy that will extend the time the IRS has to collect the tax over and above the 10-year limitation. An account in CNC status does not extend this 10-year period.
How Do I Apply For Currently Not Collectible Status?
You need to contact the IRS and demonstrate that you cannot make monthly payments towards your tax debt, and that collection would create undue hardship by leaving you unable to pay your necessary living expenses.
You can either call the IRS, or fill out IRS Form 433-F, accompanied by a letter of request. If you decide to request CNC status, you should:
- File tax returns for all prior years you were required to file a return;
- Resolve any outstanding delinquent returns;
- Continue to file your future returns on time, even if you cannot make payment, to prevent late filing penalties;
- Gather information that will help verify your income, expenses, and debts, such as copies of your paycheck stubs, statements for monthly income you receive, such as Social Security benefits, pension, spousal or child support, TANF, etc., your lease or mortgage statement that shows your required monthly payment, property tax bills, utility bills, recent credit card statements, and so on; and
- Provide the IRS any other financial information that will help it decide whether to grant your request.
What About Maryland Taxes?
There is no CNC status in Maryland, and even if there was, it would not likely help you avoid paying taxes. There is no statute of limitations on tax debt in Maryland. So your tax debt will never expire. Moreover, taxes in Maryland accrue interest at 13% per year, so your debt will only continue to grow.
If you owe both the IRS and the state of Maryland, you may want to set up a payment plan with the state first. Then when you apply for CNC status, you should be able to include the payments you are making to the state in your expenses, making it easier to qualify for CNC status because your available income to pay your federal taxes will be reduced.
Do I Need Help To File For CNC Status?
Many people who contact the IRS directly to work out their tax debt end up in IAs instead of CNC status. According to the Taxpayer Advocate Service, an estimated 300,000 taxpayers who should have qualified for CNC status actually ended up in payment plans. Does the IRS do this on purpose to squeeze more money out of struggling taxpayers? I can’t say for sure, but by dealing with them directly, you may not get the best result. A seasoned tax lawyer can represent you in your negotiations with the IRS.
For more information on Currently Not Collectible Status, a free initial consultation is your next best step. Get the information and legal answers you’re seeking by calling (410) 243-1508 today.