The IRS has a wide variety of tools that it can use to collect tax debt from you. The agency has the ability to seize your bank accounts and property or garnish your wages. The IRS is known for aggressively pursuing people who owe money in any way that they can. It is in your interest to at least try to find a way to get the agency to hit the pause button on active efforts to collect from you.
Currently Not Collectible (CNC) status can be of great help to you as you seek to resolve your tax problems with the IRS. Discuss your options with our NYC tax attorney at Thorgood Law Firm.
Why You May Want to Seek CNC Status
There are reasons why you may want to consider seeking CNC status from the IRS. Primarily, the agency may be in collection mode and is pursuing your assets every step of the way. You may owe a large amount of money, or you may simply not have the funds to pay the IRS. In the meantime, your assets and paycheck can be at risk.
You may seek a stop to collection efforts under the following circumstances:
- You have lost your job or have become underemployed
- You are living on a low fixed income, and you cannot pay your basic expenses
- You have experienced a medical hardship that has left you in debt
- You own a business, and you have experienced a temporary downturn that requires your available capital
- You cannot qualify for an Offer in Compromise, nor is an installment plan right for your circumstances
CNC status removes some of the imminent risks and fears that you are facing for as long as you remain eligible. The IRS will not take collection efforts during this time.
How Do I Seek CNC Status?
You must apply to the IRS for CNC status. Then, you must meet the criteria for the agency to grant you this temporary form of relief. Specifically, the IRS may consider the following in deciding whether to place you on CNC status:
- Your monthly income must be insufficient to cover reasonable living expenses. (Living expenses include necessary costs like housing, food, utilities, transportation, and medical expenses)
- You have little or no equity in property, savings, or other assets that could be used to pay taxes
- Paying the tax debt would expose you to financial hardship (which may be more likely when you are unemployed or facing a difficult medical situation)
- You can provide detailed financial statements, including income, expenses, and asset information, to substantiate your inability to pay.
Being placed on CNC status is something that is subject to IRS review.
- The IRS conducts periodic reviews to determine whether you can still qualify for CNC status. They can revoke your status at any time.
- If your income rises to a level where the IRS believes that you have the ability to make payments, they can take you off CNC status
- The IRS can still file tax liens on your property in the meantime
In other words, getting the IRS to temporarily pause collection efforts can buy you time and breathing room, but it is not an end in itself. You should use the CNC status as part of a broader strategy to manage your tax debt, working with a tax lawyer to obtain the best possible resolution to your situation.
CNC Can Work in Conjunction with a Future Installment Plan
Your end goal may be to seek broader tax relief from the IRS in the form of an installment plan or an Offer in Compromise. Breathing room may be only the first step in a longer process. Although the IRS wants to know that you have the ability to make payments under an installment plan, being in CNNC status does not necessarily rule out the possibility that you can reach an installment agreement.
In addition, being in CNC status does not harm your ability to make an Offer in Compromise to the IRS. If anything, the IRS may already be more familiar with your financial situation, and they could already understand that you do not have the ability to pay the full amount of taxes that you owe. Nevertheless, the IRS will want to see your full and updated financial situation when they are making any decisions about your tax situation.
CNC Status Helps, But Does Not Eliminate, Your Tax Problems
It is important to know that there are limitations that apply to CNC status. First, CNC status is temporary in nature. It is only short-term relief, and the IRS can resume collection efforts at a later date if it chooses. CNC status is also not a form of tax relief or forgiveness. Absent a settlement with the agency, you still owe the same amount of money that you did before the IRS paused collection efforts. Second, the IRS will continue to assess interest and penalties on the amount that you owe. Accordingly, your tax debt will increase for the entire time that you are in CNC status, even though you do not currently have to pay back taxes.
Therefore, you should not consider CNC status as the end of your tax issues. You should only think of it as a form of limited and temporary relief, as perhaps the first step in resolving your overall tax problems. CNC should be a part of a larger tax strategy that you should devise with the help of your tax lawyer.
Contact a New York Tax Lawyer Today
At Thorgood Law Firm, our experienced tax resolution lawyers help individuals and businesses navigate complex tax problems, stop aggressive collection actions, and resolve disputes with the IRS. Whether you need help qualifying for Currently Not Collectible status, setting up an installment agreement, or negotiating an Offer in Compromise, we provide strategic guidance tailored to your situation. Contact us today by calling us at (212) 490-0704, or by messaging us online, to protect your finances and achieve lasting tax relief.
