Dec 19, 2007

Your tax debt- Part 8 – More Currently Not Collectible (“CNC”) Hidden Details

Sometimes clients ask: “Why has the IRS not tried to collect on me so far? I owe them but I have received no correspondence or enforced collection (i.e. a levy).

That is why it important to know the details of a CNC and know that the chances are that it will not last forever. Sometimes clients who have tax debts “fall through the IRS cracks” but not very often. Increased IRS enforcement and collection programs have left very few untouched.

The reason why some are not being collected by the IRS can be two-fold (if in fact there is a liability assessed):
1. They are under criminal investigation and the IRS Criminal Investigation Division is working behind the scenes (hence, civil collection activity would need to cease), or
2. The IRS has you in CNC status for one of the following reasons:
-They cannot find or locate you – the “default” CNC
-A CNC was negotiated in the past and you have not reached the threshold to put
you out of CNC (i.e. your income is not high enough to warrant the IRS seeing you as
collectible)

If the IRS has you in a default CNC, collection can occur at anytime. However, if you have negotiated the CNC, the closing code that the IRS uses to put you in CNC will determine when you are removed from CNC and but put back into IRS Collection as a Taxpayer Delinquency Account (“TDA”). These closing codes will be reviewed in the next blog entry. It is important to know what the potential CNC closing codes are so that you know what the IRS believes is your allowable living expenses.

Some other details:
1. The information statements filed with the IRS (accumulated on the IRS “IRP” reporting file) will show the IRS how much “total positive income” or “TPI” you have. Hence, the IRS knows your gross income. This may give the IRS all the information they need to remove your CNC status.
2. Adjusted Gross Income or “AGI” filed on your last year’s tax return will have a factor in determining if CNC status is removed by the IRS. If AGI is over the closing code amount (defined in a future blog), then CNC status is removed.
3. Annually IRS sends a statement of balance due (a Letter CP 89 or equivalent letter)
– This letter requests the taxpayer to contact IRS
– The IRS will want to see if anything changes

Note: A TAX LIEN will be filed if you are in CNC status no matter how much tax you owe.

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

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