Dec 19, 2007

Your tax debt- Part 14 - Currently Not Collectible (“CNC”) – What income and expenses are allowed on a CNC?

There are many questions on how the IRS will your Monthly Disposable Income or “MDI” for CNC status.

Common questions are:
· How does the IRS determine if I technically qualify as a hardship? How does the IRS determine my income?
· Does the IRS allow all actual expenses in determining whether you are currently not collectible?
· What Income/Expenses allowed for a CNC?

Remember the purpose of the CNC is that taxpayer cannot meet “necessary living expenses.” These expenses are defined in the Internal Revenue Manual.

The IRS computes income based on your current situation. However, if your income is seasonal, do not expect the IRS to be compassionate. The IRS will want to normalize your income based on the previous 3 months, year, or 3 years, based on whatever is most advantageous to them. However, if you are currently unemployed (or current “under-employed”), incarcerated, seriously ill, or under some other hardship that hinders your ability to meet your daily living expenses, there is hope. However, the IRS will investigate your income.

The IRS will allow actual expenses paid, but only for expense areas allowed (see the expenses allowed in the IRM) and up to their allowable living expense standards as defined most recently as 10/1/2007.

Always be prepared for the question: “How are you surviving?”
– Is it?
– Credit, loans from relatives, gifts, limited savings (not always a good story),
– You will need to be able document, especially if self employed
– What do your bank statements say (specifically the deposits)? The IRS is going to ask for these documents.

This is complicated. It is recommended that you consult a competent tax professional for all of your options and questions.

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