Dec 19, 2007

Your tax debt- Part 7 – Currently Not Collectible (“CNC”) Details

CNC Status is for those in a current hardship that does not allow them to pay the IRS anything at the moment.

Some common questions are:
1. How does the IRS determine CNC? What expenses do they allow me to have?
2. How long does it last?
3. If I have some liquid assets, do I need to give them up first?
4. What triggers the IRS to put us out of CNC?
5. How often does the IRS review CNC status?

The CNC calculation is simple:
1. You have no monthly disposable income (using the IRS allowable living expense (“ALE”) standards), and
2. There are no liquid assets to pay liability (or it would not be reasonable to liquidate these assets as it would further diminish the financial hardship of the taxpayer)

CNC has it advantages and disadvantages.
1. Advantage: IRS will hold off payment of taxes
2. Disadvantage: It is reviewed annually based on the return filed or the information reports filed for you.
· You are put in uncollectible status with a “closing code” that determines when you will be sent back to collection
– Hence, IRS reviews this status with the tax returns you file annually or, if you do not file, the information returns (W-2s, 1099s, etc.) the IRS has in their possession
· If AGI > CC amount = back into collection
3. Advantage: the 10-year collection statute of limitations (“CSED”) continues to toll and is not suspended

The main pain point for CNC is that the IRS will only allow the ALE’s for expenses. Hence, other options should be considered including Installment Agreements that allow for a lifestyle adjustment (the IRS will allow this for 12-months on “actual” expenses and then revert to the IRS standards- if the IA will pay the tax in full before the expiration of the collection statute of limitations).

It is important that you know all of the options that are available to you and what your financial situation dictates. It is recommended that you consult a competent tax professional for all of your options and questions- this is a very fact intensive process and knowledge of all options is needed before you proceed.

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