Paying Back Taxes When You Can't: Currently Not Collectible Status.
- June 29, 2019
- Posted by: asal
- Category: Tax Resolution
Sometimes you need a break from the woes of your back taxes. Are you continually getting harassing calls and letters from the IRS? If the IRS is contacting you about your back taxes, contact a tax resolution specialist. A tax relief specialist can determine if you’re eligible for Currently Not Collectible status. Currently Not Collectible is a state the government uses to deem taxpayers unable to pay their outstanding tax liabilities. When the government designates you as Currently Not Collectible, it will temporarily pause all IRS collections processes. The IRS will not send you any harassing letters, intimidating phone calls, or threatening levies.
What does Currently not Collectible mean?
Currently not Collectible is a status a delinquent taxpayer can have with the IRS. When the IRS deems you as Currently not Collectible, it temporary pauses any collections against the taxpayer. The IRS will stop levies, threatening letters, and collection enforcement on you until your financial situation improves. However, to receive CNC status, the taxpayer must prove that paying back taxes would put them in economic hardship. Most often, the IRS will not grant this status to a taxpayer until they are compliant.
Who can apply for Currently not Collectible status?
For a taxpayer to qualify for Currently Not Collectible status, the taxpayer must demonstrate financial hardship. A financial hardship means, after paying for living expenses, the taxpayer has little to no room to pay back taxes. The taxpayer must demonstrate a severe economic disadvantage, not a mild inconvenience.
How does the IRS calculate “severe economic disadvantage?
To calculate a taxpayer’s financial situation, the IRS will evaluate the individual’s “total positive income.” Total positive income includes the positive value shown in the income section of a tax return, including:
– Self-employment profits
– Farming business ventures
– Real estate income
– Other sources of income or investments
The IRS then tallies up a taxpayer’s income and compares it against national and local standard living expenses. National and local general living expenses are broken up into four categories.
What does the IRS deduct from your income?
To determine what you have left over to pay back taxes, the IRS deducts the following from your real income.
Food, Clothing, and Miscellaneous
The IRS deducts monthly living expenses such as:
– Housekeeping supplies
– Personal products
– Miscellaneous expenses
Out-of-pocket Healthcare Expenses
The IRS deducts out-of-pocket healthcare expenses, including medical services, prescription drugs, and medical supplies.
Housing and Utilities
The IRS also deducts mortgages/rent, property taxes, gas, heating, garbage collection, and others.
The IRS makes transportation deductions based on national figures for monthly loan or lease payments. Additional amounts for monthly operating costs are broken down by Census Region and Metropolitan Statistical Area.
How the IRS determines your total positive income
The IRS combines your standard expenses and deducts them from your total income. After that, the IRS assesses what you theoretically have left over to pay for tax payments. You can be deemed CNC if the IRS determines whether you’d be at an unfair economic advantage to pay back taxes.
What happens when you’re declared Currently not Collectible?
When a taxpayer gets placed under Currently not Collectible, it will stop a tax levy and temporarily suspend collection actions. The IRS must leave you alone once they determine you’re unable to pay off your balance due to financial hardship. However, the IRS will still send you an annual bill notice, but they can no longer make collection attempts.
Additionally, the IRS must stop:
– Wage garnishment
– Collection actions
– Calls and letters
– Credit reporting
– Debt payments
Once your account obtains Currently not Collectible status, your debt isn’t completely gone. You will still be expected to pay off your back taxes once your financial situation improves. Though the IRS considers you Currently not Collectible, they’ll later reevaluate your standing and capability to pay your back taxes. The IRS will continue to monitor your financial situation throughout the year. If your income increases, the IRS removes your status.
Do penalties and interest continue during Currently not Collectible status?
Even though you save money through deferred payments and lifted garnishments, you will still pay more. Interest and penalties will continue to accrue on whatever outstanding back taxes are due.
Additionally, you must still file income tax returns while your account is in Currently not Collectible status. Any tax refunds will be automatically applied to your outstanding tax debt until you pay it. Therefore, it’s essential to work with a tax relief specialist and learn about your back tax settlement options. You may be eligible to apply for an Offer in Compromise, which could significantly lower your tax debt.
How long does Currently not Collectible status last?
Currently not Collectible status isn’t a permanent solution, just a temporary relief. How long you will remain under Currently not Collectible status will determine your situation. When the IRS determines you as CNC, they’ll enter a closing code which will eventually pull your case for review. Your code depends on your net disposable income and the circumstances surrounding your financial situation. The IRS generally has up to 10 years to attempt to collect on taxes. If the IRS doesn’t collect taxes during this period, they can no longer collect on the amounts.
How do I apply for Currently not Collectible status?
When considering applying for Currently Not Collectible status, consult a tax resolution professional. You will need to provide the IRS with a thorough financial report. That financial report will determine the fate of your case. Before you apply, make sure you file all tax returns for previous years. Even if you can’t afford to pay back taxes, you should still file. Your account must be in good standing with the IRS when applying for Currently not Collectible. Additionally, you’ll need to provide the IRS with the following documents:
– Income and living expenses
– Assets and their values
– Bank statements from the last three months
– Proof of out-of-pocket medical expenses
Get Help From A Tax Relief Professional
Hiring a tax relief specialist can get you a better deal when attempting to pay off back taxes. A tax attorney can help you determine which repayment method is right for you. The tax resolution specialist can also negotiate with the IRS on your behalf and submit the necessary paperwork. Owing back tax debt can leave you in bad financial shape. The IRS only wants to get what money you owe them in back taxes. Often, they are willing to help you settle back taxes, but you have to know how to try. That’s where a tax relief services company can come in handy. When you hire a tax resolution professional, there are other methods you can use to avoid expensive back tax debt. Call Platinum Tax Defenders for a free consultation today.