If you owe money to the Internal Revenue Service (IRS) and struggle to pay it back, you might be eligible for the IRS' financial hardship program. Through this program, the IRS might designate your tax account as "Currently Not Collectible" (CNC) and pause collection efforts. You can delay your tax payments until your financial situation improves and you're able to pay your debt.
An experienced California tax attorney can help you decide if the financial hardship program is right for you and what your other options might be.
What Is Currently Not Collectible Status?
You may owe back taxes to the IRS (that you're not trying to dispute) but have no disposable income to pay them. If you don't have enough income to meet your basic living expenses and pay off your tax debt, you can request a CNC status from the IRS. If the IRS agrees that you don't have sufficient income, the agency will accept your request. CNC status may also be referred to as hardship status.
The IRS decides to give you CNC status by looking at your assets and income and comparing them to national and local living standards. If the agency finds that you have little or no income left to pay your tax bill after deducting basic expenses, you will receive CNC status
How Do I Qualify for Hardship Status?
To see if you qualify for the IRS's hardship status, you'll have to contact the agency. Typically, the IRS considers your request and gives you CNC status if you show you have no significant assets and if collection would create an economic hardship for you.
File Prior Tax Returns
If you want to pursue CNC status, you'll have to make sure you've filed all prior tax returns. You should also continue to make estimated tax payments and federal tax deposits on time if you're required to make these types of tax payments. Keep in mind that while you're in the process of applying for CNC status, the IRS can continue to charge late penalties and interest on your tax debt.
Gather Financial Information
The IRS will ask to see your financial information, such as proof of income, expenses, and debts. If you're preparing to request CNC status, you should gather all these documents so they're ready to send to the IRS.
An experienced tax attorney can help you prepare your CNC status request for the IRS and let you know which documents and financial information you'll need to improve your chances of being accepted.
What Happens When My Account is in CNC Status?
Once the IRS puts your account in hardship status, the agency will stop collecting from you. You won't have a levy against your property, for instance. CNC status doesn't prevent late fees and interest from accruing, however.
While your account is in CNC status, you should still file your tax returns on time, even if you can't pay. The IRS will always send you an annual bill as well. The agency also has the authority to keep your tax refund to help pay off your debt.
If your tax account is in CNC status, you can still make voluntary payments if possible. But the IRS has the right to remove you from hardship status if they find your financial situation has improved after a yearly review.
The IRS won't levy your property, but it's possible the agency could still issue a lien against you. A lien can affect your credit score and make it harder to sell your property.
How Long Can I Get CNC Status For?
CNC status is a temporary pause on the collection of your tax debt. It's not a permanent solution that instantly wipes away your back taxes. The IRS will reevaluate your financial situation each year and ask for your compliance in this process. You may have to continue submitting statements of income and expenses to the IRS during this time.
An important thing to note with hardship status is the IRS collection statute of limitations. The IRS has 10 years to collect back taxes. After those 10 years are up, the IRS writes those debts off. The 10-year timer is still running while your account is in CNC status.
Can I Get Hardship Status on My California Taxes?
Some of California's state tax-collecting agencies also have financial hardship programs. The Franchise Tax Board (FTB) lets taxpayers apply for hardship status if they cannot reasonably pay their tax debt after covering basic expenses. This status expires after one year, and you must reapply if your financial situation hasn't improved.
The FTB may also deem your tax debt uncollectible and request the State Controller to discharge it. Your debt is uncollectible if you cannot pay it now nor in the near future. When the FTB discharges a tax debt, it stops collection on it. But the debt isn't forgiven. The FTB may place liens against the taxpayer's property. The tax debt will also accrue interest and late penalties during the time it's discharged. The FTB can release someone from their tax liability and extinguish their tax debt completely if they owe less than $500, if they have a permanent financial hardship, or if the debt remains unpaid for 30 years.
A tax attorney familiar with California's tax codes can answer your questions about hardship status and discharged tax debts with the FTB.
How Do I Get Currently Not Collectible Status with the IRS?
To receive CNC status from the IRS, you'll have to contact the agency directly and inquire. Dealing with the IRS can be both complicated and frustrating, especially if you have delinquent taxes. An experienced tax attorney can work with the IRS on your behalf, getting you the best solution, and protecting your rights. If you have a federal or state tax liability and you're struggling to make ends meet, contact a California Tax Attorney today to set up a consultation and learn about the options for your tax issues.