Are you unable to pay your old tax debts? Many taxpayers find themselves struck in this situation for a variety of reasons. But the resulting stress and financial damage can cause problems for years after the tax was actually due.
The good news is that the IRS provides a few solutions to help taxpayers in these circumstances. For those in the most difficult of financial situations, the answer may include being granted currently uncollectible (CNC) status. What is this tax debt tool? And how can you seek it successfully? Here are a few answers.
What Is Uncollectible Status?
Simply put, when the IRS notes a specific tax debt as uncollectible, efforts to force collection of that debt will be halted. The IRS won’t officially discharge the debt at this point, so it continues to exist. But the IRS will no longer attempt to seize assets, place new liens, or start levies against your paycheck or bank account. They may apply future tax refunds toward your uncollected debt, though, and interest would accrue.
A taxpayer who receives this notation is generally considered to be current with their taxes as long as they continue to stay on top of other tax years and obligations. This is important because it has less of a negative impact on your life, job prospects, and personal or business credit than such black marks like levies and liens.
How Can You Receive Uncollectible Status?
CNC status is only granted for a few serious reasons. Commonly, the IRS may grant it if a taxpayer dies while owing a tax debt and the IRS is convinced that the debt cannot be collected from their estate. If the debt’s statute of limitations (the time period allowed for collection) expires, the debt may be marked as uncollectible as well. And if a business that owes taxes declares bankruptcy, that action may halt collections.
For most taxpayers, though, uncollectible status is the best option when they simply don’t have enough income or assets to actually pay an old tax debt. But it would not be enough to simply not have assets you could use to pay the debt. You generally also must be unable to pay for normal daily living costs if forced to continue to pay the amount due — referred to as causing an undue hardship.
To request CNC status, you’ll need to complete an application and provide documents that prove your case. These documents generally include proof of your income and bank accounts as well as statements of all monthly debts you owe and your monthly living expenses. Proof of extenuating circumstances (such as a disability that prevents you from earning more income) can also be an important part of your claim.
Is Uncollectible Status Permanent?
Uncollectible status, if granted, can be permanent or temporary. If a taxpayer dies or a business is dissolved, the debt is liable to be permanently uncollectible. But for as long as the debt remains legitimate, the IRS does have the option of revisiting your case. If the circumstances have changed and the IRS feels that you may now be in a position to pay the debt, the CNC status can be changed.
Where Should You Begin?
Do you think that uncollectible status might be the answer to your intractable tax debt problem? Your best bet is to avoid going it alone when it comes to dealing with the IRS. At Wiesner & Frackowiak, LC, we can help. Make an appointment today to speak with our experienced legal team about all your tax payment options and the best way to find success with your uncollectible debt application.