Many taxpayers are unable to pay the IRS anything at all on their back tax debt. Financially struggling taxpayers may be placed into Currently Not Collectible status. This is also known as "IRS hardship".
You may be
CURRENTLY not COLLECTIBLE
Merely telling IRS you are unable to pay anything right now isn't enough. You must meet IRS definition of "unable to pay."
How can you be placed in Currently not Collectible?
The IRS requires that you disclose all of your income sources to them as well as all of your monthly expenses. IRS telephone representatives are trained to ask a series of pointed questions designed to discover specific amounts of monthly income and expenses.
Once the IRS rep has recorded a taxpayer's Financial Information, some of the taxpayer's expenses are subjected to maximum limits based on national or regional averages which are called "allowable expenses." Some of the taxpayer's expenses may be totally rejected or disallowed since they are not considered "ordinary and necessary living expenses"; and some of the taxpayer's expenses may be completely allowed.
Your idea or definition of "ordinary and necessary living expenses" will probably be radically different than the IRS definition of "allowable expenses."
Allowable Expenses Include but are not Limited to:
1. Monthly rent or mortgage (up to a certain amount)
2. Monthly utilities
3. Food, clothing, sundry items (number of dependents added)
4. Health insurance
5. Court-ordered payments (child support, alimony, etc.)
6. Secured loans.
7. Transportation allowance
These are some of the items that are considered to be "allowable expenses."
If your monthly "Allowable Expenses" are greater than your Monthly Gross Income, then you have Negative Monthly Cash Flow and you will be Currently not Collectible.
If you have a negative monthly cash flow, then IRS will not require you to make any kind of payment on your back tax debt. The IRS will consider you a "hardship" case and place you in Currently not Collectible (CNC) status.
You will still owe the taxes and the penalties and the interest. It's just that IRS can't force you to make any kind of payment(s) to pay off any part of those unpaid taxes as long as you the IRS has you classified as Currently Not Collectible (CNC).
How long can you stay classified as
Currently not Collectible (CNC)?
You can stay classified as CNC indefinitely. IRS will monitor your income based on your W-2s and other income that is reported to them every year. If the IRS computer sees that your income has increased from one year to the next (say about 15% to 20%), then they will want to reevaluate your Financial Information to see if you can make payments.
Usually, the IRS will require a new Financial Statement from you in 18 to 24 months.
There are also a few rules and requirements you must meet in order to stay Currently not Collectible with the IRS. Your failure to meet just one of these requirements will result in the default of your Currently not Collectible (CNC) status and IRS will begin to levy you again:
Your failure to meet any of these requirements will result in the default of your CNC status.
The default of your CNC status will result in your tax case being reassigned to the Collection Division of IRS for action.
Your reassignment to Collection will result in levy action on your wages, bank account, retirement account, Social Security payments, and any other source of cash that IRS can find.
Tax Liens and Currently Not Collectible
If you are in Currently not Collectible, the IRS will, more than likely, file a Tax Lien. This isn't so bad, as the Statute of Limitations will continue to run out. Having a Tax Lien is a small price to pay for the tranquility of not having the IRS coming after you.
OFFER in COMPROMISE
If you have been declared Currently not Collectible, does it not make sense to file for an IRS settlement through the Offer in Compromise program. If the IRS has decided that you do not have the ability to pay, you should "run the remainder of the race" and settle your back tax debt once and for all.
YOU DO NOT HAVE TO SUFFER
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