If you owe the IRS back taxes, the IRS might assess your financial situation and decide that you cannot pay back taxes, placing your account into a Currently Not Collectible (CNC) status. The IRS has helpful information discussing all the in’s and out’s if you owe the IRS back taxes. However, while your account is in CNC status, the agency will not pursue collection efforts, such as placing a lien on your bank account or garnishing your wages. However, you will still be subject to interest and penalties during this time. The IRS will periodically review your account to determine whether your financial situation has changed and whether you can pay. The IRS has 10 years from the date that it first assesses taxes to collect on delinquencies; in some cases, that time frame can even be extended.
Eligibility for CNC Status
If you owe the IRS back taxes, to qualify for CNC status, you will need to provide proof of your income and expenses, such as mortgage statements, car loans, utility bills, etc. The IRS will question whether you can sell assets or secure a loan to pay off the debt. You will also need to file any tax returns that are missing. During this suspension, your tax debt will continue to accrue interest and penalty fees.
What qualifies as a hardship, per the IRS when you owe the irs back taxes? The agency uses a standard annual income of $35,000. Once your income exceeds that threshold, your account will be reopened. The IRS might also decide to reactivate your case periodically simply based on a date, such as two years in the future, even if your financial status has not changed.
The IRS sets certain caps or limits, listed in the Collection Financial Standards, on your monthly expenses, depending on where you live. For example, caps on housing and utility expenses in California are higher than they are in Mississippi.
You will likely qualify for CNC status under the following conditions:
- You meet eligibility standards.
- You do not have money left in your budget to pay the IRS without putting yourself into hardship.
- Seizing your assets would cause a hardship.
If you owe the IRS back taxes, and you qualify for CNC, the IRS will mail you a letter informing you of your approval.
Find Out Whether a CNC Is an Appropriate Fix if you owe the IRS back taxes.
Call our tax professionals for a confidential consultation at 720-398-6088.