Dec 19, 2007

Your tax debt- Part 12 – Currently Not Collectible (“CNC”)- will it last forever?

Clients commonly ask this question: “Does CNC status last forever?”

If the IRS is doing their job, its system will determine the answer to this question. The IRS sets up systemic follow-ups to review CNC’s periodically (and it sends an annual notice of balance due- it does not tell you that you are in “CNC”). The IRS rarely does not like to set up mandatory CNCs as it does not have the resources to follow up on them. Also, it believes that its systemic review will catch all undeserved CNCs. Mandatory CNCs usually require the scrutiny of an IRS Revenue Officer. These resources will determine and usually do the follow up on mandatory CNC follow ups.

The IRS Internal Revenue Manual defines Systemic and Mandatory follow ups. In IRM 5.16.1.6 (12-01-2006) Systemic and Mandatory Follow Up on CNCs are defined as:

• Systemic follow-up is limited to hardship, unable to locate, and unable to contact cases. IRS CNC closing codes were defined in a previous blog entry. Systemic follow up is done in:
• Cases where there are assets able to full pay at a later date (an action must happen to remove a client from CNC)
• Request mandatory follow-up only when required or when there is a likelihood that revenue will be collected by taking the requested action.
• ACS or RO puts in a date to make the client a TDA
• Example:
• Financial information shows the taxpayer's allowable expenses exceed income and no equity in assets. The taxpayer has fallen on hard times but expects to be back to work in a year and able to pay the tax debt. Allowable expenses are $22,000. Report the account CNC using closing code 25. Do not request a mandatory 53 (CNC) follow-up. The account will be reissued systemically when the taxpayer files a return with income of $28,000 or more. (NOTE: these closing codes are in my next blog)
• Example:
• Financial information shows the taxpayer's allowable expenses exceed income. The taxpayer has equity in their home sufficient to pay the tax debt and requests an eight-month extension to pay to allow them time to refinance their residence. Do not report this account as CNC with a mandatory follow-up in 8 months.
• The IRS will request mandatory follow-up when there is evidence that the taxpayer's ability to pay will improve and either computer generated reactivation is not available or the improvement will happen significantly sooner than systemic reactivation can occur. Generally, the expectation is that revenue will be collected as a result of the follow-up request.

If the details and the resolution of your tax debt are important, it is recommended that you consult a competent tax professional for all of your options and questions.

1 responses:

Anonymous,  April 8, 2008 at 10:18 PM  

If the IRS requests it, is filing a Form 433a which lists all assets mandatory or is it merely a request that can be politely declined? This is when a person is not making an offer in compromise but merely during the collections process. Thank you! Dave B., winkles1@gmail.com

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