Are you struggling to pay off your tax debt? Are you looking for a way to get some relief from the IRS? The IRS has a program called Currently Not Collectible (CNC) status that may be able to help. But how does the IRS evaluate requests for CNC status, and what factors are considered in the decision-making process?
At Creative Advising, we are certified public accountants, tax strategists and professional bookkeepers who have helped many clients successfully navigate the CNC process. In this article, we will explain what CNC status is, how the IRS evaluates requests for CNC status, and what factors the IRS considers when making its decision. We will also provide some tips on how to increase your chances of being approved for CNC status.
Currently Not Collectible status is a form of tax relief that temporarily suspends the IRS’s collection efforts on a taxpayer’s tax debt. CNC status is granted when the IRS determines that a taxpayer does not have the ability to pay their tax debt. This status can provide taxpayers with some much-needed relief from the IRS’s aggressive collection efforts.
When a taxpayer applies for CNC status, the IRS will evaluate the taxpayer’s financial situation and determine whether or not they qualify. The IRS considers several factors when making its decision, including the taxpayer’s income, assets, and expenses. The IRS will also consider the taxpayer’s ability to pay their debt in the future.
If the IRS determines that the taxpayer does not have the ability to pay their debt, they will grant CNC status and suspend collection efforts. However, if the IRS determines that the taxpayer does have the ability to pay their debt, they will reject the request and continue collection efforts.
At Creative Advising, we understand the CNC process and can help you increase your chances of being approved for CNC status. We can help you gather the necessary documents and information to make your case to the IRS. We can also provide guidance and support throughout the process to ensure that your application is successful.
If you are struggling to pay off your tax debt, don’t hesitate to contact us. We can help you determine if you qualify for CNC status and guide you through the process.
IRS Collection Financial Standards
When taxpayers are unable to fully satisfy their tax debt within the 10-year statute of limitations, the IRS will typically evaluate requests for Currently Not Collectible (CNC) status. The IRS Collection Financial Standards provide a guide that the IRS uses to determine a taxpayer’s ability to pay. With CNC, the IRS temporarily suspends collection action and removes the taxpayer from its docket. The taxpayer is still liable for the underlying tax debt but is given a reprieve from collection and payment until their financial condition improves.
The IRS Collection Financial Standards consist of fixed monthly expenses, based on Local Standards and National Standards, and also takes into account the taxpayer’s income and assets. The Local Standards are updated each year by the IRS, and they reflect the average cost of living in the area in which the taxpayer resides. The National Standards represent the taxpayer’s basic needs such as food, clothing and shelter. Once the IRS has removed the taxpayer from their docket, it is important to remember that the taxpayer must still remain compliant with their filing requirements.
The IRS considers the Collection Financial Standards as one of the primary factors when evaluating requests for CNC status, but the standards are also used in other circumstances related to payment plans and tax liabilities. The standards are used by the IRS to determine a taxpayer’s ability to pay, which then allows them to make fairer decisions regarding the taxpayer’s tax liability. Although the Collection Financial Standards are used by the IRS to determine a taxpayer’s ability to pay, other factors may also be considered in the decision-making process.
Criteria for Determining Currently Not Collectible Status
At Creative Advising, we understand that taxpayers may need assistance when facing financial hardships due to an inability to pay overdue taxes. Currently Not Collectible (CNC) status is a program offered by the IRS that can help taxpayers through difficult times. In order to qualify for CNC status, applicants must demonstrate that they do not have the financial means to pay the taxes owed.
The criteria for determining eligibility for CNC status is based on whether the taxpayer is able to pay their current monthly living expenses and still have enough money to cover the amount due for their overdue taxes. If the taxpayer is able to pay their living expenses, but not have additional funds to pay the full amount of taxes due, they will generally not qualify for CNC status.
The IRS also evaluates a taxpayer’s debt-to-income ratio when determining eligibility for CNC status. If it is determined that a taxpayer is spending too much of their income on expenses other than their taxes, they may not be granted CNC status.
Additionally, the IRS considers the taxpayer’s history of repaying their other obligations and sources of financial assistance. If a taxpayer has a history of not paying their other obligations such as rent or utilities, or have other financial resources available, they will not qualify for CNC status.
At Creative Advising, we can help taxpayers determine their eligibility for CNC status and assist them in the process of making a request for CNC status if they do qualify. Our CPA’s can help offer advice and assistance every step of the way.
Factors Considered in the IRS Decision-Making Process
Understanding how the IRS evaluates requests for Currently Not Collectible (CNC) status is an important part of navigating the tax system and saving money on taxes. After applying for CNC status, the IRS will carefully consider several factors to make a decision on the taxpayer’s ability to pay their current liability.
According to Tom Wheelwright, a certified public accountant, the primary factors used by the IRS to evaluate a request for CNC status include the taxpayer’s assets and monthly income along with their reasonable living expenses. Assets may include cash, stocks, bonds, real estate, vehicles, or other personal property. The IRS will compare a taxpayer’s assets against their current financial liabilities to determine their ability to pay or if they qualify for CNC status.
In addition, the IRS considers current monthly income and expenses. This includes a taxpayer’s wages and other forms of income and their reasonable and necessary living expenses. If, after accounting for necessary expenses, the taxpayer does not have enough income left to pay their tax debt, the IRS may determine that the taxpayer qualifies for CNC status.
The IRS also considers any special circumstances that may affect a taxpayer’s ability to pay their tax liability. This includes the taxpayer’s health, age, inability to find gainful employment, and unexpected changes in their financial situation. Knowing how the IRS makes decisions when evaluating requests for CNC status can help taxpayers and tax professionals better prepare and navigate the tax system to achieve the best outcome for their situation.
Steps to Request Currently Not Collectible Status
Currently Not Collectible Status (CNC) is an incredibly important tool made available to taxpayers by the IRS, yet most people don’t understand how it works or even how to request it. For those who can benefit from CNC, the ability to suspend collections and cease payments on an outstanding tax liability can relieve incredibly burdensome financial stress and allow them to focus on their financial future.
At Creative Advising, we know the value of CNC to our clients, so we always recommend they make a formal request to IRS. How do you apply for CNC? First, you will need to contact the IRS. After you explain your situation, they will make a determination based on your current financial standard. The financial standard considers your total, monthly income and expenses. To demonstrate the amount of your true financial hardship, providing detailed income and expense information will help support your request for CNC. From there, the IRS will make an official determination on your request.
When the IRS evaluates requests for CNC status, they will consider an individual’s or joint filer’s total income. Although the IRS will factor income from more than one source, they typically use the regular, monthly income when evaluating hardship requests. Common sources of income include employment wages, investments, pension, alimony, or other types of government assistance.
The IRS will also consider an individual’s monthly expenses such as housing, food, utilities, and medical, as well as any debts. The IRS will compare the total monthly income to the total monthly expenses to determine the amount of the payment that can be applied toward the outstanding tax debt to ultimately decide if CNC is an appropriate resolution option.
At Creative Advising, we work to ensure our clients are fully informed when making decisions regarding CNC status. We understand how valuable CNC can be, and will work diligently to ensure a taxpayer obtains or maintains such status. We can also provide helpful guidance when a CNC request is denied and advise alternative solutions.
Impact of Currently Not Collectible Status on Tax Liability
The IRS’ Currently Not Collectible status offers immediate financial relief from outstanding tax debt for individuals and businesses who don’t have the ability to pay their taxes. The IRS understands that taxpayers can find themselves facing expenses that exceed their financial capability. Not every taxpayer who requests Currently Not Collectible status will receive it; the IRS carefully evaluates each request considering all relevant facts and circumstances.
To be approved for Currently Not Collectible status, taxpayers must demonstrate to the IRS that they do not have sufficient assets or income to make payments towards their tax debt. This is demonstrated by providing detailed financial documents, such as pay stubs, bank statements, credit card statements, and asset displays. However, being approved for Currently Not Collectible status does not mean the taxpayer will never have to pay their taxes.
The IRS will periodically review the taxpayer’s financial condition to determine if their financial condition has improved enough that the taxpayer can begin making payments towards their tax debt. Taxpayers approved for Currently Not Collectible status must be aware that the right to pursue collection may be held in abeyance for a year, or more, but the balance is still due and the debt is still taxable.
How does the IRS evaluate requests for Currently Not Collectible status, and what factors are considered in the decision-making process? The IRS makes a determination of a taxpayer’s ability to pay taxes by looking at the current financial situation, including income, assets, expenses, as well as other factors. If the taxpayer’s current financial state cannot support payments towards their taxes, then the taxpayer is eligible for Currently Not Collectible status. The IRS can automatically assign this status to unpaid taxes that have been outstanding for longer than 10 years. However, taxpayers can still choose to request Currently Not Collectible status and submit the required documents even if their taxes are not within this timeframe.
“The information provided in this article should not be considered as professional tax advice. It is intended for informational purposes only and should not be relied upon as a substitute for consulting with a qualified tax professional or conducting thorough research on the latest tax laws and regulations applicable to your specific circumstances.
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