The IRS offers many opportunities to get your debt situation in order, including currently not collectible status. For some taxpayers, currently not collectible status initially seems to be the most appealing. This program offers many opportunities, but these are offset by a few significant downsides, as highlighted below:
A Time-Consuming Request Process
The application process for CNC is nowhere near as bad as some IRS programs, but there’s work involved nonetheless. Be prepared to thoroughly document your current financial situation. The IRS will examine your income, savings, and living expenses. You may need to submit a financial statement or use pay stubs to verify your wages.
Interest And Penalties Won’t Go Away
CNC may pause collection activity, but your account won’t technically be frozen. In fact, your debt could increase considerably as a result. Not only will you neglect to chip away at it with installment payments, but you’ll also still be subject to typical interest and penalties. This could make it even more difficult to pay your debt once collections resume.
Not a Permanent Solution
CNC status may be sufficient for now, but it won’t necessarily last. The IRS will review your case periodically to determine whether you still qualify. If your financial situation changes, you may need to find alternative solutions for your ongoing tax debt. If you’re hoping to reach the collection statute of limitations, the possibility of CNC status being revoked should give you pause.
If despite all these caveats, you determine that CNC is a viable solution, you’ll want to go in with eyes wide open. Keep looking for long-term solutions that can keep you afloat if your CNC status is eventually revoked. Hopefully, this temporary reprieve will give you the time you need to get your situation under control.
Still not sure if CNC status is right for you? Our team at the Highland Tax Group can provide the insight you need. We’d be happy to discuss your tax situation, so don’t hesitate to get in touch.