As with any tax resolution case, strategy plays an important part in resolving the tax debt.
There are many factors that go into devising a plan to get a taxpayer compliant. Once such tool that can be very effective is for a taxpayer to be deemed “uncollectable” or “CNC (Currently Not Collectable – in IRS jargon)”.
What does it mean to be deemed “uncollectable” by the IRS. Taxpayers can be placed in CNC status if their equity in assets plus their income is not sufficient to cover IRS allowable expenses. When a taxpayer is deemed uncollectable, the taxpayer’s tax accounts will be marked so that the IRS does not take any levy action against them. Being deemed “uncollectable” does not resolve the tax issue but it does benefit the taxpayer in a couple of ways:
- The 10-year collection statute on assessed taxes continues to run
- The IRS will not take collection action against the taxpayer’s assets or income
People may wonder why a taxpayer should consider CNC as a collection alternative if it won’t resolve the tax debt? There are times when it is beneficial for the taxpayer simply to buy time when dealing with the IRS. Time may be what the taxpayer needs to become eligible for an IRS collection alternative. Below are examples of when filing for CNC status is beneficial:
- The 10-year collection Statue is about to run out:
The IRS has 10 years from the date it assesses tax to collect the tax owed. This is called the “Collection Statute Expiration Date” or “CSED”. If the CSED is approaching, the last thing the taxpayer wants to do is stop the collection statute clock from running. Filing for CNC status stops IRS collection action and may allow the time remaining on the statute to run out.
- The taxpayer has past compliance problems they have been unable to fix:
Generally, a taxpayer must be in tax compliance for him or her to obtain a collection alternative (Offer-in-Compromise, Installment Agreement, etc.). However, there is an exception for taxpayers who are deemed uncollectable. Filing for CNC Status staves off collection efforts by the IRS allowing the taxpayer more time to get into compliance.
- The taxpayer cannot get into current compliance with estimated tax payments:
This usually happens when a taxpayer cannot make multiple estimated tax payments to get into compliance for a collection alternative. By having the taxpayer placed in CNC status, the taxpayer can buy time to get past the current year and start the new year by being tax compliant. It is easier to make one estimated tax payment in the first quarter of the year then making three estimated tax payments for quarters 1 through 3 to get into compliance.
A lot of times, all the taxpayer needs is time to get compliant to pursue a collection alternative. Currently-Not-Collectable status can be an effective way to prevent the IRS from enforcing collection action for a period of time which is what the taxpayer needs. While CNC status may not eliminate the tax debt, it may give the taxpayer time to get a plan in place.
If you or anyone you know has a tax issue with the Internal Revenue Service or the Indiana Department of Revenue, please schedule a phone or in-person consultation today. Your tax issues won’t go away on their own, but with the help of an experienced Tax Resolution Specialist, you can put your tax problems behind you once and for all.
Patrick H. Wanzer, CPA, CTRS