What does the IRS status “Currently Not Collectible” mean and how does it help a taxpayer?
In this article:
- What Is the CNC or “Currently Not Collectible” Status?
- Why Get the IRS Currently Not Collectible Status?
- Who Can Apply for the CNC Status?
- Where Can a Taxpayer Go for Help?
- When Does a Taxpayer Need to Apply? Are There Any Other Important Dates?
- How Does a Taxpayer Apply for a CNC Status?
Questions and Answers About the IRS Status “Currently Not Collectible”
What Is the CNC or “Currently Not Collectible” Status?
To put it simply, a CNC tax status means that the IRS stops sending demand letters as well as suspends the imposition of fines and penalties. The IRS gives the currently not collectible status for a taxpayer who is delinquent on 1 or 2 tax years and who is experiencing financial distress. The delinquency pertains to both the filing and the payment of said taxes.
The CNC status postpones the payment of taxes and penalties incurred before the IRS approves the CNC status. This does not mean that the IRS will forgive and forget your delinquent taxes. They give delinquent taxpayers the chance to pay taxes and recover from whatever financial difficulties they are experiencing.
The general public must hear a caveat first. Claims of promotions and services to get a CNC status bombards the taxpayers who are having a hard time paying bills.
Taxpayers do not need to go through such services. While paying professionals is a no-brainer when it is a necessity, the CNC status is a free service offered by the IRS. Before you dive in and hire a so-called “CNC professional,” always do your homework first.
Lastly, the statute of limitations gives the IRS 10 years to get the back taxes left unpaid. For delinquent taxpayers, this means the forgiveness of their unpaid taxes if the IRS did not manage to get the back taxes in 10 years.
Why Get the IRS Currently Not Collectible Status?
Getting a currently not collectible tax status can change your financial life for the better. When you already have difficulties paying taxes, and then get penalized for not paying them, delinquent taxpayers tend to go spiraling downwards in a financial vacuum.
When the IRS grants a CNC tax status, the delinquent taxpayer no longer gets additional penalties from the IRS. For example, the failure-to-file and failure-to-pay penalties have 5% and .5% fees of unpaid taxes each month, respectively. Under the law, the cap for both fees is at 50% total, at 25% each. Since the CNC status stops a tax account from getting any further penalties, the delinquent taxpayers save additional money.
Another benefit includes the lifting of tax liens and levies. When a delinquent taxpayer reaches $10,000 in unpaid taxes, the IRS can add a lien to a property. This tax lien not only makes getting loans difficult but also lowers your credit score.
The IRS can also garnish your wages, deducting a percentage every time a taxpayer receives his or her salary. With the CNC tax status, the IRS will no longer garnish part of the wages. This suspension of wage garnishment gives a better cash flow, which can help any taxpayer recover from financial struggles.
Of course, a CNC tax status also stops the demand letters and calls. Any collection activities currently ongoing are temporarily postponed to help the taxpayer with daily expenses. Lastly, the IRS can also give a deferred tax payment structure for delinquent taxpayers.
Who Can Apply for the CNC Status?
Only taxpayers who are delinquent for at least a year can apply for a CNC tax status. This financial distress does not just mean current difficulty, but also the possibility of economic trouble.
Anyone who is undergoing financial hardships can ask for a CNC tax status. For example, a lot of unemployed people call the IRS to have the Currently Not Collectible tax standing. While these taxpayers may have unpaid taxes due to their previous employment, their current lack of a salaried job prevents them from paying.
If you or an acquaintance can benefit from a CNC tax status, it is best to call the IRS to have a more personalized discussion. The IRS does not grant the CNC tax status to just anyone; the institution needs certainty that applicants do need serious help and that they are not just looking for a way to avoid paying taxes.
Where Can a Taxpayer Go for Help?
Any taxpayer can go immediately to the IRS website to download any forms. If you want a more in-depth discussion, you may call them at 800-829-1040.
When Does a Taxpayer Need to Apply? Are There Any Other Important Dates?
The delinquent taxpayer must call the IRS as soon as possible. While the IRS usually accepts those who already have incurred penalties, early applicants who foresee economic hardship also have a chance to get accepted. The IRS gives a CNC tax status on a case-by-case basis.
How Does a Taxpayer Apply for a CNC Status?
There are two forms for getting a CNC tax status. The first one is IRS Form 433-A and the other is IRS Form 433-F.
The first form deals with recording your current economic standing. You fill this out when the taxpayer is offering a compromise. The second form is for taxpayers who cannot pay their taxes in full and who either opt for a deferred or installment type payment structure.
Once the taxpayer has chosen the appropriate form, he or she must prepare income statements. The IRS wants the total positive income, which is the aggregate of all the positive numbers in a tax return. This includes salary, interests, and any other income.
Once the taxpayer has calculated the total positive income, the IRS will compare the value to both the federal and state standard living expenses. The total positive income will be accordingly compared to food, healthcare, utilities, and even transportation costs.
You do not need to have a deficit in order to get the CNC tax status. As long as the IRS can see that the taxpayer can possibly undergo financial difficulties, then they can confer the CNC tax status. They will also apply your tax refund to your unpaid taxes first if there are any.
A CNC tax status may be the solution for people struggling to pay their bills. You do not need to be bankrupt or in deficit to apply. As long as economic difficulties arise when taxpayers pay the tax debt, the IRS is willing to understand and grant the taxpayer a currently not collectible tax status.
Do you know anyone who has applied for a currently not collectible tax status? Do you have any questions about the procedure? How about any tips or stories on staying afloat when times are tough? Let us discuss in the comments section below.
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