In recent months we all have been bombarded with negative news regarding the economy. The stock market has been extremely difficult to predict. The national unemployment rate is still troubling and the recovery from the housing crises seems to be years away.
As a result of these economic conditions many taxpayers find themselves having to choose between paying for basic living necessities or their unpaid taxes resolution. Faced with this choice many people try to avoid the IRS, not realizing the IRS may grant them a financial time out.
The IRS calls this financial time out “Currently-Not-Collectible” or CNC. Once the IRS makes a determination that a given taxpayer has a hardship the case will be classified as “CNC”. The hardship is based on an individual’s inability to pay the IRS after living expenses have been paid. It also involves not having the cash on hand or access to loans to satisfy the tax debt. In other words after the monthly bills are paid there is nothing left for the IRS to collect.
Under the protection on “CNC” the IRS will allow a taxpayer time to get their financial house in order. The IRS agrees to stop trying to collect the delinquent tax. Accordingly, the taxpayer is not required to make monthly payments and the IRS will not issue a wage or bank levy.
The bad news regarding “CNC” is (1) this is a temporary solution to IRS Tax problems in that the IRS will review most cases on an annual basis and may push the case back into the collection area. (2) Interest and penalties are still added to the tax liability. (3) The IRS will also file a tax lien in the amount of the unpaid tax to protect the government’s interest (In case you hit the lottery, they will get paid).
However, the benefits could in fact overshadow the downside since most “CNC” cases last more than one year. In addition, the expiration of the collection statute continues to run when a case is classified as “Currently-Not-Collectible”. Unless the IRS decides to file a judgment to collect the unpaid taxes the time allowed for the IRS to collect the balance is 10 years.
The classification of “Currently-Not-Collectible” may be utilized as a permanent solution to IRS problems depending on how long a given taxpayer is afforded that status and how long the IRS has to collect the unpaid tax. Most taxpayers who qualify for CNC should consider submitting an Offer In Compromise as a permanent tax solution to their IRS problems.
This IRS financial time out is available to business taxpayers as well. If a business cannot meet its current business expense and finds itself in a deficit the IRS will suspend enforcement action. The key to this temporary tax solution is proper documentation.
Once the company’s income and expenses are supported and a deficit is clear the IRS will back off.
For additional information please call us at (212) 684-3637 or contact us through our website www.nwtaxsolutions.com.