Americans are responsible for paying their share of taxes each year, whether through employment payroll withholding or payment for any balance due when filing. To no surprise, some find themselves in positions where they are completely unable to pay the IRS.
As a result, these taxpayers are left with unpaid tax burdens and the responsibility to figure out payment as soon as possible.
Taxpayers who cannot pay their share of taxes may fall under a Currently Not Collectible Status. In these cases, they may be able to defer the amounts owed until their financial situation improves.
Notably, penalties and interest will still accrue, but the IRS may pause collection actions while you take time to determine the best path forward. Electing to work with a team of tax professionals is the first step in working towards settling your outstanding balance with the IRS.
Our team at Instant Tax Solutions will review and discuss your financial situation and advise on current IRS programs available. Call us today to learn more about your options and how we can help you apply for the IRS Currently Not Collectible Status.
Call (888) 485-8109 or complete our online form to schedule a free consultation and tax accounts review.
What Is Boise IRS Currently Not Collectible Status?
An IRS Currently Non-Collectible Status, referred to as a CNC, is when the taxpayer cannot pay their owed dues because of income-related hardships. If these taxpayers were to pay their owed amounts to the IRS, they would have serious adverse impacts on their ability to pay typical bills, like rent, food, electricity, and more.
After taxpayers take out what they owe for living expenses, there might not be much left to collect. The IRS will take a deep look at your expenses and how you handle your income, hoping you can pay in installments.
During this time, they may choose to limit certain payments that can be made from your account to accommodate monthly installments as needed.
While the IRS is keen to collect what they are owed, they do recognize difficult financial situations exist. If the IRS determines that you cannot pay your debt at the time, they may place your account under a Currently Not Collectible status.
This means that payment is still due, and penalties and interest still apply, but that the IRS will not be directly pursuing recovery of the tax debt for the time being.
How Do I Get an IRS Currently Not Collectible Status?
The taxpayers who qualify for this program are automatically added by the IRS. Each year, letters are sent out in the mail notifying those who qualify for the status.
However, if you do not receive a letter, it does not mean you are out of luck. If you believe you qualify for a CNC status, you may submit an application that the agency will process.
The application process has multiple steps, but overall, it will include:
- Contacting the IRS and speaking to a representative about your situation
- Filing your taxes each year, even if you cannot pay now, to prevent any late filing penalties
- Gathering and submitting information to verify income, expenses, and outstanding debts
- Supporting evidence proving your expenses (like a lease agreement or electric bill)
- Completing Form 433-A or 433-B for individuals and businesses, respectively
If you meet specific requirements, you may be eligible to have tax returns prepared for free at a Volunteer Income Tax Assistance Center (VITA) or the Tax Counseling for the Elderly (TCE). Working with someone knowledgeable of these programs will guide you in the right direction.
It is important to note once more that having a Currently Not Collectible status does not mean that you are not accruing interest or paying late fees. In fact, interest and penalties will continue to increase as time goes on.
The Currently Not Collectible status only temporarily prevents agents and collections from contacting you. In most cases, it also creates a payment plan so that you can pay what is owed in installments.
In addition, the IRS may elect measures to protect themselves during this agreement. They may file a Notice of Federal Tax Lien on your property or assets until the debt is paid.
Liens impacting your property are subsequently removed 30 days from the final payment date.
How Does the IRS Determine When a Tax Debt Is Currently Not Collectible?
When you submit your application for a Currently Not Collectible status, you will submit supporting documentation that proves your financial hardship. The IRS will then review and, with the information provided, choose to approve or deny your application.
The IRS will consider a range of factors, including the filer’s:
- Current assets, including all account balances and property
- Regular income from employers or your business
- Regular, reasonable expenses, like rent or a mortgage and food
- Other debts and obligations, like credit cards
- Efforts to repay or resolve their debts, such as through a bankruptcy filing
Instant Tax Solutions will review your finances and determine your debts to the IRS. Their support and knowledge will guide you in exploring your options to reach an ideal goal.
What Should I Do While My Tax Account Is in Currently Not Collectible Status?
Once the IRS agrees that your taxes are Currently Not Collectible, there are steps that you can take to impact your financial situation positively. You can:
- Routinely review your finances in full. Learning the status of your financial health is critical to paying off debt.
- Keep clear and honest records of assets. The IRS will know of any sale of property or increasing credit card debts. It’s best to be honest and report what you must.
- Avoid unnecessary liabilities. If you owe money to the IRS, it is probably not the best time to buy a car or take a family vacation.
- Keep paying any new taxes and filing any returns on time. Continue to pay your owed amounts and make your returns on time to prevent future complications to your account. Idaho collects state income taxes each year, which should be kept up to date while in a Currently Not Collectible status.
- Work to find a solution for the Currently Not Collectible balance. CNC status doesn’t last forever, and it doesn’t prevent you from being pursued by the IRS for other debts. It is in your best interests to look through your forms of available relief with professional tax help and determine how you can best pay off or otherwise resolve the tax debt.
How Does a Currently Not Collectible Status Change What I Owe?
Receiving this status on your account from the IRS does not change the amount you owe or any interest or late charges you have accrued. In fact, interest will be applied while you are on this status, and once your account becomes due and payable, you will owe these additional amounts apart from the initial debt.
The team at Instant Tax Solutions is here to guide you and create a reasonable plan that will help get you out of this debt as soon as possible.
How Long Does a Currently Not Collectible Status Last?
You can expect the IRS to review your account at least once per year. The IRS will be checking periodically on the status of your account.
If any changes indicate that your financial strains have eased, they may choose to end your Currently Not Collectible status immediately. Once your status changes, anything owed, including penalties and interest, will be pursued once more through all means available to the IRS, including levies, liens, and other actions.
Can I Prevent Future Tax Liabilities?
No one wants to owe money to the IRS. Most workers under an employer offset their tax liability by withholding in each paycheck.
However, those with non-traditional forms of employment, like their own business or earning 1099s, face exposure to more tax liabilities.
You may be able to prevent future income tax liabilities when you adjust your withholding or make estimated tax payments (quarterly) if you’re a business.
Is It Possible to Waive Penalties?
Any overdue amounts to the IRS will incur late fees and accrue interest. These amounts can tally quickly and, when taken from the owed amount, can significantly decrease the owed amount.
However, it is possible to have some of these penalties removed. Referred to as a penalty abatement, the taxpayer will request that the IRS remove additional charges.
Requesting a penalty abatement is easier than you may think. Many find that the IRS is willing to lessen any additional penalties and interest when it is the first offense made by the taxpayer.
Although it does not seem like much, the reduction in debt can make it easier for a taxpayer to pay the original amount owed.
Is There an Alternative to the Currently Not Collectible?
There are multiple programs available through the IRS. One of the most popular alternative plans to Currently Not Collectible is an offer in compromise.
This program allows taxpayers to present a lower amount of what is owed in a lump sum or monthly installments.
The application process for an offer in compromise involved multiple forms, documents, and a non-refundable application fee of $205. When it is deemed reasonable, the IRS will accept this lower proposed amount to clear the debt.
It is beneficial for you to consult with a tax expert to help you determine the best payment plan that meets your needs while equally seeking tax relief. To learn more about the different payment options available, you can learn more on the IRS website.
Pause Tax Payments with an IRS Currently Not Collectible Status. Call Us Today!
Dealing with the IRS can be an intimidating and overwhelming process. Depending on your situation, you may need to collect numerous documents, complete many forms, and pay out-of-pocket fees to process your application.
At the end of the day, there is no guarantee that your application will be approved, either, which is news that can be devastating to many. But, with the help of Instant Tax Solutions, you will have expert care and guidance as you go through this process and an increased chance of receiving approval for your situation.
Call us today at (888) 485-8109 to speak to one of the members of our Boise Instant Tax Solutions office during a free case and financials review. You may also reach us online by completing our Contact Us form.