IRS Currently Non-Collectible Status: Frequently Asked Questions
At Mockensturm, Ltd., we have more than 100 combined years of experience as tax law attorneys and CPAs. Following are some of the most common questions we hear about resolving IRS tax problems.
Question: How long will it take to get my IRS problems resolved?
Answer: Some IRS problems can be resolved just by having a member of our staff submit a financial statement to the IRS.
Question: What happens once the IRS has my financial statement?
Answer: Depending on what the financial statement shows, one of two things will happen:
- 1. We will get you into as low an installment payment plan with the IRS as possible; or,
- 2. If your expenses are greater than your income, we can often get clients declared “currently non-collectible.”
Question: What does “currently non-collectible” mean?
Answer: Once we have proven that a client is unable to pay the IRS any amounts owed, the IRS will stop its collection efforts. The amounts are still owed, and the IRS will continue to charge interest, but the harassment by the IRS will cease.
Question: What happens next?
Answer: The IRS will be keeping tabs on the you, checking from time-to-time to see if you have the ability to pay. In addition, the IRS will file liens on your property, so the IRS is paid if you sell the property.
Question: Is there a way to get the IRS off my back once and for all?
Answer: Yes there is! Once the IRS has declared a taxpayer currently non-collectible (effectively admitting the taxpayer is unable to pay), we can file an Offer in Compromise with the IRS and get them to settle for one low amount.
Question: How much will it cost to settle with the IRS?
Answer: This often has to be handled on a case-by–case basis. It depends largely on what, if any, assets you have. The good news is we have a lot of experience protecting client’s assets!
Negotiating A Repayment Arrangement If You Can’t Pay
The IRS understands that sometimes taxpayers simply can’t pay their back tax bill, at least at the present time. In this situation the IRS will place their account in “Currently Non-Collectible Status” (“CNCS”). This means that no collection action will be taken by the IRS for at least 18 months unless there is a significant change in a taxpayer’s circumstances that would allow them to start paying their debt. To prove CNCS a taxpayer must provide information on all sources of income in his or her household along with proof of all expenses and other cash outlays. This can usually be done over the phone with an IRS Collections representative, although sometimes written proof must be faxed or mailed to the IRS to verify certain items. The representative will input income and expense items by category into a program designed to determine collectability and actual outlays will be compared to national and local standards to determine how much of an expense will be allowed. As a rule of thumb, if the taxpayer is barely getting by and isn’t overpaying for things such as housing or education, the IRS will grant CNCS. After 18 months or more, the Service will usually circle around to see if the taxpayer is in any better shape. If nothing much changes CNCS will be established again for another 18 months. Ultimately if nothing changes, the 10 year statute of limitations will run and the liabilities will be written off.
Settlements For “Pennies On The Dollar”
Maybe. It is possible to settle for less but only under certain, narrow conditions. This program, called Offer in Compromise, is designed to clear someone’s tax liabilities and give them a fresh start if they can prove that they will never be able to repay their tax debt during the time frame the IRS has to collect, which is 10 years. If a taxpayer can prove that they are only making enough to cover basic living and transportation expenses and not much more, and that they have no equity in their assets, the IRS will accept less than what is due, often much less. My team and I have settled hundreds of thousands of dollars in IRS tax liabilities for a few hundred dollars, sometimes even less. But, as you can see, you need to be in very tight financial circumstances to be able to qualify under this program. If someone tells you they can settle your tax debt for less without completing a detailed financial analysis, they are misleading you or worse. I believe your interests are best served by working with a qualified tax expert to determine if you truly qualify for an Offer in Compromise.