Your tax debt- Part 11 – Currently Not Collectible (“CNC”)- does the IRS always require Financial Statements and documentation?
A common question from clients is: “I am obviously in financial hardship, will the IRS require full information to put me in a non-collectible status?”
Technically, the answer is no. However the reality is different.
According to the IRS Internal Revenue Manual:
• Under certain conditions, a Collection Information Statement, Form 433A/F is not required before reporting an account CNC. The aggregate assessed balance, including any prior CNC's, must be less than the amount in LEM 22.214.171.124.9(3) (not published by the IRS) and at least one of the following conditions must exist:
• the taxpayer has a terminal illness or excessive medical bills
• the taxpayer is incarcerated
• the taxpayer's only source of income is social security, welfare, or unemployment
• the taxpayer is unemployed with no source of income
• Note: these do not require IRS managerial approval- but IRS must confirm the conditions with all data available
The key is the IRS collection person must feel comfortable with the above conditions. The reality is that most are not comfortable with taxpayer testimony of unemployment, terminal illness, incarceration, or hardship. Full financials are generally required with the proof of hardship.
Most individuals have a difficult time with this negotiation. Assuming the IRS will be compassionate to any of the above situations is not realistic. It is recommended that you consult a competent tax professional for all of your options and questions.