Among the remedies available to taxpayers in financial distress that are unable to meet their tax obligations is the ability to obtain Currently Not Collectible (CNC) status from the Internal Revenue Service (IRS). The IRS has authority to designate an account as CNC under Policy Statement 5-71, and may do so for a variety of reasons, all of which use transaction code 530. Probably the most common basis for obtaining Currently Not Collectible status is a situation in which “collection of the liability would create a hardship for taxpayers by leaving them unable to meet necessary living expenses.” See Internal Revenue Service, What a Criminal Investigation Does, available at https://www.irs.gov/irm/part5/irm_05-016-001r.html#d0e95. Typically, such a determination will be associated with the sudden onset of economic hardship, where the taxpayer lacks any substantial assets upon which the IRS can levy and the taxpayer has only those liquid assets necessary to cover living expenses. In other words, a taxpayer’s entire situation will be taken into account, such that only those highly unlikely to ever be able to meet their tax obligations will be accorded Currently Not Collectible status; this may include an assessment of age, training, education, and the possibility of the taxpayer earning additional income in the future.
Once the taxpayer notifies the IRS that they are unable to meet their tax obligations, the IRS will prepare a Form 53, and follow the relevant instructions attached thereto. A taxpayer that wishes to obtain Currently Not Collectible status may also be required prove that he or she lacks sufficient assets with which to satisfy the tax debt, and that the taxpayer has insufficient income to satisfy that debt; this must be shown through the filing of a Collection Information Statement (CIS) not more than 12 months old. While this Collection Information Statement will usually be Form 433-A, Form 433-F can also be used instead of Form 433-A if the taxpayer is a wage earner and the potential trust fund recovery penalty (TFRP) liability is less than $100,000. In addition, the taxpayer will undergo an annual IRS review, which the IRS conducts to ensure that a sound basis remains for the designated Currently Not Collectible status accorded a taxpayer. Thus, taxpayers may be required to fill out and re-submit a Collection Information Statement on an annual basis.
Taxpayers seeking Currently Not Collectible status should note that the ten-year statute of limitations on all tax debt will continue to run even after a taxpayer’s account has been accorded Currently Not Collectible status. That said, because the IRS has ways of “stopping the clock,” achieving Currently Not Collectible status does not necessarily mean the statute of limitations will continue to run.
Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS Law at (619) 595-1655.