When a taxpayer is incapable of meeting his or her federal tax obligations, he or she has a number of options, each of which can serve to delay, reduce or even expunge tax debt. Offers in compromise, installment agreements, and hardship determinations are just some of the ways in which tax debtors can effectively manage tax debt without paying it off outright. Yet another option for tax debtors facing this situation is to have their account deemed Currently Not Collectible. This practice is also referred to as “CNC” or “53ing an account,” namely because of the Internal Revenue Service (IRS) computer code which indicates that the account is in a “currently not collectible” status.
In order to have an account deemed Currently Not Collectible, the tax debtor must provide a basis for doing so, e.g. that, even under the tightest budget constraints, small monthly payments would cause a severe economic hardship. Internal Revenue Service, Internal Revenue Manual 126.96.36.199 (5-22-2012), Currently Not Collectible Policy and Procedure Overview, available at https://www.irs.gov/irm/part5/irm_05-016-001r.html. If the tax debtor can show this to be the case, then the IRS will place the account in Currently Not Collectible status for a period of time. By doing so, the account is removed from collections altogether, such that the IRS will not levy on a tax debtor’s assets, seize any of the tax debtor’s assets, or garnish the tax debtor’s wages. This will remain the case until the account is reviewed and it is determined that the tax debtor can in fact meet his or her tax obligations without incurring substantial financial hardship.
One of the major benefits of Currently Not Collectible status is that for the entire time that the account is in this status, the 10-year statute of limitations on tax debt collection will continue to run. This is also called the Collection Statute Expiration Date (CSED), and if the IRS allows the CSED to run completely then it can no longer collect on the tax debt. Potential expiration of a tax debt is one major incentive for tax debtors to seek to have their account enter into Currently Not Collectible Status. Additional incentives include the fact that collection actions will not be pursued, at least for the time being.
If you have more questions regarding Currently Not Collectible status and how it can help you manage your tax obligations, speak with an experienced tax attorney to learn more.
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.