IRS Status: Not Collectible
Any individual, sole proprietor, or single member LLC is eligible to be placed into Currently Not Collectible (CNC) status. This occurs if income is not sufficient to make monthly payments to the IRS. Currently Not Collectible status is useful for those who need extra time to adjust financial situations to pay off their taxes. Obtaining this status is a temporary form of relief to stop IRS collection activities, as well as not being subject to levies. The U.S. Treasury Inspector General reports that a few million Americans are on this status at any given time.
To obtain currently not collectible status, a financial statement must be provided to the IRS. You must prove that your household income and monthly living expenses will not suffice to pay them. Expenses such as rent, car payments, medical expenses and insurance are all taken into account by the IRS. The IRS has expense guidelines to configure these amounts. They can then determine if paying the IRS would result in a hardship to pay living expenses. For example, if affording food, rent, car payment, child support, daycare, and seizing your assets would create hardships. They can place your account in currently not collectible status.
How Long Do I Remain in Currently Not Collectible Status?
Once placed in this status, the IRS monitors return each year to watch for an increase in income. By law, you are guaranteed at least one year in this status. The IRS has 10 years to collect a debt, starting from the date you first filed the return. A non-collectible determination can last for years or as long as you’re in hardship, allowing you to live uninterrupted by the IRS.
The following reasons include why the IRS removes people from non-collectible status:
- Increase in Income.One of the more common reasons individuals are removed. The IRS can see whether your income situation has improved and whether you can now afford to make a payment. Once the revaluation is completed, you will be removed and a payment plan can be negotiated.
- Failure to File and Pay all Future Taxes. Failure to pay subsequent tax return when they come due.
- Formal Review. Once you are placed on CNC Status, every few years the IRS will mark your file for formal review and request updated information. This is done if they believe your income can increase in the future.
- Right to Review at any time. Even if there are several years remaining on your 10 year statute period. The IRS still has the ability to review for any reason at all. Looking in to option such as an offer in compromise can avoid this.
Allied Tax Advisory Group will review your financial situation and determine whether pursuing CNC status is worthwhile and take care of the rest of the process.