There are times where you agree with the IRS that you owe taxes, but you can’t pay due to your current financial situation. If the IRS agrees that you can’t both pay your taxes and your reasonable living expenses, it may place your account in Currently Not Collectible (CNC) (hardship) status.
While your account is in CNC status, the IRS will not generally engage in collection activity. For example, it won’t levy on your assets and income. However, the IRS will still charge interest and penalties to your account and may keep your refunds and apply them to your debt.
Before the IRS will place your account in CNC status, it may ask you to file any delinquent tax returns.
If you request CNC status, the IRS may ask you to provide financial information, including your income and expenses, and whether you can sell any assets or get a loan.
If your account is placed in CNC status, during the time it can collect the debt the IRS may review your income annually to see if your situation has improved. Generally, the IRS can attempt to collect your taxes up to 10 years from the date they were assessed, though the 10-year period is suspended in certain cases. The time the suspension is in effect will extend the time the IRS has to collect the tax. CNC status will not suspend the 10-year collection period.
Because the IRS won’t suspend interest and penalty charges, even if it stops trying to collect the balance due, you may want to consider other possible payment options within your means before asking the IRS to place your account in CNC status. For example, if you have delinquent tax obligations, you may want to look into an offer in compromise or installment agreement.
Call Jeffrey R. Siegel, your Kansas City Tax Attorney, for help with back taxes.