Apr 26, 2010

When does payment deferral or "currently not collectible" end with the IRS?

If you cannot pay your taxes, the IRS may have (at your request and providing of evidence to support not being able to pay) put you in currently not collectible status (IRS calls this "CNC" or "Status 53"). What this means is that you cannot pay now, but you may be able to pay later.

The question for most who obtain this status is: when will the IRS start to ask me to start paying again?

The answer lies in how the IRS put you into CNC.

The IRS can put you in CNC for several reasons:
1. You proved your basic living expenses (as allowed by the IRS) is greater than your income, or
2. The IRS could not locate you or your assets and "defaulted" you into CNC due to little or no collection potential

For our purposes, I will assume dituation #1 above - that your documented living expenses that you gave the IRS is greater than your income. When the IRS eventually grants you CNC status (after you have provided extensive documentation of your income, expenses and assets), it will be reviewed annually based on the total positive income ("TPI" is the gross income amounts you report on your return - not just the amounts that are taxable) you reported on your return OR the total positive income reported to the IRS under your SSN (if you did not file a return).

The IRS will assign a "closing code" to your CNC approval that will correspond to your annual expenses that you provided to the IRS to meet your basic, allowable living costs. These closing codes are in $8,000 increments starting at $20,000 and ending in $84,000. For example, if you were able to prove $39,000 a year in basic living expenses as allowed by IRS standards and you had income under that amount and no assets to liquidate, the IRS would put you in CNC with closing code "27" (TPI would have to be above $44,000 - i.e. you would not leave CNC until your TPI is above $44,000.

So, when will the IRS ask you to pay again? The answer is: when your income exceeds your expenses.

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