The federal government can be ruthless in its measures to recover unpaid debt from United States taxpayers. Through wage garnishment, liens, bank levies, and other harsh measures, you could end up in an extremely difficult financial situation. Fortunately, there are options for taxpayers to have their tax debt reduced or their obligations to pay debt paused while their financial situation improves, such as Currently Not Collectible status (CNC).
If paying back your IRS tax debt would cause you significant hardship and with little or no money to pay for basic living expenses, you may be eligible for Currently Not Collectible status (CNC). With CNC status, the IRS cannot engage in collection efforts, such as wage garnishment and levies, until your situation improves.
However, it is difficult to get CNC status, and you will need the expertise of an experienced tax attorney to help you with the process.
Ronald Arthur Stearns Sr. PLLC
When dealing with the IRS, you need a seasoned and skilled attorney like Ronald Arthur Stearns Sr. PLLC by your side. He has been representing clients in Texas since 1995 and has a deep understanding of state and federal tax laws. He has never worked for the IRS and is dedicated to protecting taxpayers’ rights.
Ronald Arthur Stearns Sr. PLLC can assess your situation, help you get temporary tax relief, negotiate a settlement or reduced tax debt with the IRS, and help you apply for Currently Not Collectible status (CNC). As an experienced tax lawyer, he understands how important it is to protect your financial situation and prevent economic hardship.
He will do everything in his power to protect your best interests.
Call our law firm today to arrange an initial consultation at 210-853-2135.
IRS Tax Debt
Owing money to the Internal Revenue Service (IRS) for unpaid taxes can be extremely stressful. If you or your business do not submit your tax return and pay your tax liability by the due date each year, you could end up with IRS debt. The type of tax debts you could face depends on the taxes you owed and did not pay, including IRS income tax, payroll tax, or self-employment tax.
The longer you do not pay your IRS debt, the larger the debt becomes. This is because the IRS adds penalties and interest to unpaid debts, which significantly increases the amount you owe. When you are in a difficult financial situation, it is challenging to pay back taxes, which is why the IRS has some collection methods to recover this debt.
First, they will send taxpayers who owe taxes notices and demands for payment. If the taxpayer does not respond to the IRS demands and does not make any tax payments, the IRS may file a Notice of Federal Tax Lien. A lien places a claim on the taxpayer’s property, and they cannot sell or refinance their property while it is under this federal lien.
Sometimes, the IRS may issue a levy to seize the taxpayer’s assets to pay back taxes. With a levy, the IRS can take money directly from a person’s bank account or through wage garnishment. With garnishment, wage earners are at risk of having their wages withheld by the employer and sent directly to the IRS to pay back debt.
Currently Not Collectible Status (CNC)
To help taxpayers in difficult financial situations, the IRS has some programs that provide temporary relief for paying back debt. Currently Not Collectible status (CNC) or Hardship Status is one debt relief mechanism by the IRS. If you qualify for CNC status, it means that you cannot currently make payments on tax debt because of your financial situation and because paying back debt would cause unfair economic hardship.
If a taxpayer qualifies for Currently Not Collectible status, the IRS must pause collection actions until the person’s financial situation has improved. This means that the IRS cannot garnish taxpayers’ wages, place a lien on their property or assets, or take money from their bank accounts to pay back unpaid debt.
With Currently Not Collectible (CNC) status, your tax debt remains and you will still have to pay back the debt at some stage. The IRS will conduct periodic reviews of your financial situation to see if it improves enough to enable you to pay back the debt. So, if you get a new job or your monthly income increases substantially, you may then have to pay back the debt you owe.
Requirements For Currently Not Collectible Status (CNC)
To qualify for Currently Not Collectible status, you must prove that paying back your tax debt would cause significant financial hardship. This means that if you have little or no money remaining after you pay for essential living expenses each month, like utilities, rent, and groceries, you may qualify for CNC status.
To assess whether you are eligible for CNC status, the IRS will look at whether your monthly expenses cost more than your monthly income, you have no monthly income, your only income is from Social Security benefits such as unemployment or welfare benefits, or you have very little income each month.
The IRS will also review the assets and property you have, such as real estate, bank accounts, vehicles, and other assets. If you have a lot of assets but little monthly income, the IRS may use your assets to pay back the debt you owe.
How To Get Currently Not Collectible (CNC) Status
To apply for Currently Not Collectible status (CNC), we strongly advise getting help from an experienced tax lawyer in Texas. The process is quite complicated and the IRS is reluctant to offer this relief to taxpayers. You must submit convincing evidence proving your hardship status and show that you currently cannot pay back the debt you owe.
An attorney can help you with the process by gathering the documentation needed to prove your hardship. This includes bank statements, documentation of your monthly income, such as Social Security benefits and employment income, and evidence of your allowable monthly expenses. Allowable living expenses include rent and mortgage payments, healthcare payments, and other expenses related to your life and welfare.
The supporting documentation you submit to the IRS is essential to your claim. The more documentation you have proving your financial hardship, the higher chance you have of obtaining CNC status. You may also be required to fill out a Collection Information Statement (CIS), which summarizes your financial information, including your income, assets, and expenses.
Your lawyer will also ensure that you have complied with tax payments until the financial difficulty began and provide evidence of your tax returns.
Can Currently Not Collectible Status (CNC) Help With Tax Debt?
It is important to note that Currently Not Collectible Status (CNC) does not eliminate or reduce your tax debts. In fact, even if you get CNC status, you will still have to pay back the debt you owe, which could include any late filing penalties or other penalties you accrued on the debt.
This status does not relieve the tax obligation and does not reduce the amount of tax you owe. It simply provides you temporary relief from the debt that you owe and gives you more time to improve your current financial situation.
However, if you need to reduce the amount of debt that you owe and want to make an offer with the IRS to settle for less than what you owe, contact an experienced attorney.
Other IRS Debt Relief Programs
If you do not qualify for Currently Not Collectible Status (CNC), or if you want to reduce the overall debt that you owe, there may be other options available for you to settle your debt for less than what you owe.
The IRS does not inform people of the many debt relief programs they have available, which is why it is important to speak with an experienced attorney about how you can minimize your debt obligations.
There are various programs and options available to taxpayers to settle their debt, including:
Offer in Compromise (OIC)
An Offer in Compromise (OIC) is an IRS program that allows certain taxpayers to settle their debt for less than what they originally owed. The aim of this program is to provide tax relief for those in financial hardship and reduce the total tax burden.
To qualify for this program, you must prove that paying the tax debt in full would cause economic hardship or be unfair to your financial status because of exceptional circumstances, such as a severe illness. When assessing whether a person is eligible for this program, the IRS looks at “reasonable collection potential”, which is the amount they estimate they can recover from you in the future.
You then must submit a payment plan that is lower than your original debt amount, alongside documentation supporting your claim. If the IRS thinks that the offer is fair and that your reasonable collection potential is less than the offer you made, they may accept the offer. The IRS will examine all of your assets and earning potential when making an evaluation under this program.
Partial Payment Installment Agreement (PPIA)
A Partial Payment Installment Agreement (PPIA) is an agreement between a taxpayer and the IRS to pay back unpaid debt through reduced monthly payments over an extended period of time. This payment plan is for taxpayers and individuals that cannot pay back their debt through regular installment agreements, as doing so would negatively affect their financial situation.
To qualify for a Partial Payment Installment Agreement (PPIA), you must first liquidize your assets and equity to pay for the debt you owe. If you still owe money after doing this, you can then apply for the PPIA program to make smaller payments each month.
What Is Currently Not Collectible Status And Could It Help You With Tax Debt? – FAQs
While in CNC status, the IRS will keep your tax refunds and use them to pay back debt. If you need your tax refunds because you are in a financially dire state, like facing eviction, for example, an attorney may try to apply on your behalf to get your tax refunds.
To qualify for CNC status, you must show that paying back the unpaid debt would cause significant hardship, and you would be unable to afford basic living expenses if you paid back your debt. Some things the IRS will look at when assessing your claim include:
- Whether you earn less than $84,000 a year.
- How many years are left on the ten-year statute of limitations for collecting debt.
- Your employment status.
- Whether your living expenses are within the IRS guidelines.
- The disposable income you have after paying taxes, debt, and essential living expenses.
There is no exact time limit on how long you can stay in Currently Not Collectible status. However, it is not a permanent solution and rarely lasts longer than a few years. The length of time you can remain in CNC status depends on your unique situation, and your financial information will be reviewed every one or two years.
If there have been significant changes in your financial status, such as an increase in income or inheritance, you will be required to begin paying the tax back. Therefore, it is important to arrange a payment plan with the IRS as soon as possible, such as an Offer in Compromise (OIC) or an installment agreement.
Contact The Law Offices of Ronald Arthur Stearns Sr. PLLC Today!
Having an IRS debt hanging over your head can be extremely stressful and cause serious financial anxiety. When you cannot pay for basic living costs, like your rent, utilities, groceries, and healthcare, because you are paying back debt, you need to contact an experienced tax attorney.
There are options available to taxpayers to provide temporary relief from debt, such as Currently Not Collectible (CNC) status. If you need to settle your debt for less than what you owe, there may also be other options available to you. To learn more about these options, contact Ronald Arthur Stearns Sr. PLLC today.
Ronald Arthur Stearns Sr. PLLC has the knowledge and experience to guide you through a difficult financial debt situation. He has almost thirty years of experience protecting Texas taxpayers against the harsh measures of the IRS, and he has a deep understanding of tax laws.
Our law firm cares about keeping Texas citizens out of tough financial situations, and we want to do what we can to help you. Ronald Arthur Stearns Sr. PLLC is a dedicated taxpayer advocate with an A+ Better Business Bureau Rating (BBB).
Protect your best interests and call our law firm today at 210-853-2135 to arrange a consultation with an experienced Texas tax attorney.