If you owe IRS back taxes or CA state back taxes and do not qualify for bankruptcy or are looking for an alternative to filing bankruptcy, then having your account placed on a currently not collectible status (CNC) may be a viable solution.  A CNC status is a deferment or temporary hold on the collection of your taxes.  For some people they just need time until they have the ability to pay their taxes for others it may be an alternative to bankruptcy or an offer in compromise.   The CNC program varies for the IRS and for the Franchise Tax Board  (State of California income taxes).

Below is more information and answers to the IRS’ currently not collectible status:

What is a Currently Not Collectible Status?  The Internal Revenue Service (IRS) has a program called “Currently Not Collectible” for taxpayers that are having a financial hardship and can’t afford to pay their back taxes where the taxpayer’s account is placed on hold or in suspense to be reviewed at a later date for possible collections.

Can Anyone Obtain a Currently Not Collectible Status?  Everyone’s financial situation is different.  Thus, for those individuals that cannot afford to pay their back taxes on an IRS Installment Agreement, but on the other hand do not qualify to settle their taxes through an IRS Offer in Compromise may be able to resolve their back taxes by having their account placed on a currently not collectible status.

Is a Currently Not Collectible Status Permanent?  No, a currently not collectible status is a temporary hold or suspension of IRS collection activity due to the taxpayer’s financial hardship.  Thus, the IRS is entitled to revisit the taxpayer’s situation after the taxpayer is placed on this status to see if the taxpayer’s financial situation has improved and the taxpayer is able to make payments to towards the back taxes.

Will the IRS Keep a Taxpayer’s Refund? Yes, as long as a taxpayer owes back taxes the IRS will keep the taxpayer’s refund and will apply it to their back tax debt.

Will Interest and Penalties Continue to Accrue? Yes, interest on the outstanding tax debt will continue and any related penalties, such as the failure to pay penalty, will continue to accrue as well.

Will My Taxes Eventually Expire?  Yes, the IRS can only collect back taxes for a limited amount of time (statute of limitations) and while a taxpayer is on a CNC status the clock on the expiration date continues to run.  So, if a taxpayer remains on a CNC status up to the expiration date, then the taxes will drop off and expire and the IRS will no longer make efforts to collect the old back tax debt.

Does a Currently Not Collectible Status Settle the Back Taxes?  No, a currently not collectible status  does not settle someone’s taxes it is an alternative to the Offer in Compromise program.

Will IRS Collections Stop While on a Currently Not Collectible Status?  Yes, once a taxpayer is on a currently not collectible status the IRS will refrain from phone calls, notices, wage garnishments and bank levies.  Yet, the IRS may file a federal tax lien to secure it’s interest and will send periodic statements showing the balance owing.

What is the Benefit of a Currently Not Collectible Status?  In summary, the currently not collectible status will remove a taxpayer’s account out of collections (no wage garnishments, bank levies, etc.) and will allow the taxpayer to focus on meeting their personal expenses without incurring further hardship.   Also, if a taxpayer remains on this status through the date the taxes expire, then the back taxes will be resolved.

Attorney Michael Johnson has worked with hundreds of taxpayers and has successfully worked with the Internal Revenue Service to have their account placed on a currently not collectible status.  Sacramento tax attorney Michael Johnson offers a free case review to taxpayers in need of assistance.  For your free case review click here.