Tax Help and the IRS Currently Not Collectible Status

January 16, 2024 | Tax Relief

Tax Help and the IRS Currently Not Collectible Status

Title: “Unraveling Tax Complexities: An In-Depth Guide to Navigating IRS’ Currently Not Collectible (CNC) Status”

Introduction

Obtaining hardship status with the IRS, also known as Currently Not Collectible (CNC) or status 53, becomes more than a mere convenience – it transforms into a crucial necessity for those genuinely grappling with financial distress.

I. Exploring Hardship Status:

Hardship status, synonymous with Currently Not Collectible (CNC) status, emerges as a lifeline for individuals, sole-proprietors, partnerships, and limited liability companies (LLCs) genuinely unable to afford their IRS tax bill. This status, comparable to a financial forbearance, provides a temporary cessation of collection activities for specific tax years, extending a lifeline to those submerged in dire financial straits. However, obtaining CNC status is not a decision the IRS takes lightly, requiring a meticulous process.

A. Applying for CNC Status:

To qualify for Currently Not Collectible status, individuals typically need to complete Form 433-F (Collection Information Statement for Wage Earners and Self-Employed Individuals), while businesses are required to submit Form 433-B (Collection Information Statement for Businesses). In some instances, the IRS may request Form 433-A, an extended version of Form 433-F. Notably, for taxpayers with liabilities under $10,000, the IRS might waive the mandatory completion of a Collection Information Statement, especially if the taxpayer is disabled, incarcerated, or has limited income sources.

These forms delve into the intricate details of your financial situation, requiring comprehensive information about personal details, employment, other sources of income, and extensive documentation of your financial standing. The IRS utilizes this information to assess your collection potential, employing Collection Financial Standards as a benchmark.

B. Working With an IRS Representative:

For individuals already engaged with an IRS representative, the option of requesting “status 53” or Currently Not Collectible status exists. This involves the IRS internally filing Form 53 (Report of Currently Not Collectible Taxes). While this streamlined process can expedite proceedings, the IRS may still demand additional information or completion of forms such as Form 433-A, Form 433-F, or 433-B, contingent on the specific circumstances.

II. Confirming CNC Status:

Upon the IRS confirmation of your Currently Not Collectible status, a communication, usually in the form of letter 4223, is dispatched, signifying “Case Closed – Currently Not Collectible.” Additionally, IRS account transcripts will echo similar language. It is crucial to comprehend that while this designation provides temporary relief, interest and penalties continue to accrue during this period.

III. Proving Financial Hardship:

Proving financial hardship is no facile task; it necessitates meeting specific and stringent requirements. Seeking professional assistance before attempting to file for uncollectible status is not merely advisable but prudent. A licensed tax professional can adeptly guide you through the intricate process, helping you determine if declaring hardship is the most judicious option.

It is imperative to recognize that being classified as Currently Not Collectible does not serve as a permanent resolution to your tax problem. Instead, it affords you time to stabilize your financial situation. This status becomes particularly invaluable if your income is not anticipated to rise in the future, such as in retirement. Should your financial situation remain unaltered by the time the Collection Statute Expiration Date (CSED) arrives for a given year, you may find solace in no longer owing money for that year.

IV. Maintaining Compliance During CNC Status:

While immersed in Currently Not Collectible status, staying current with tax obligations is imperative. Filing returns promptly and ensuring the timely payment of any current taxes not only demonstrates goodwill but ensures a smoother transition once your financial situation improves.

V. Tax Help and the IRS Currently Not Collectible Status:

When facing an impossible situation to pay owed taxes, seeking tax help becomes essential to demonstrate to the IRS that collecting would create a financial hardship. This leads to a noncollectable status, known as “currently not collectible,” a status applicable to both individuals and corporations. Typically reviewed every one to two years, during this time, the IRS ceases collection efforts, including levies.

Gathering Information:

In most cases, the IRS gathers financial information for noncollectable status by requiring completion of forms 433-A, 433-B, and 433-F, verifying assets and income sources. These forms, intricate to complete accurately, consider factors such as age, education level, employment status, cost of living, and medical issues. Assistance from a tax help attorney can prove invaluable in navigating these complexities.

The IRS’s definition of hardship may differ from individual perspectives. Lack of assets and income covering only basic living expenses may render one currently not collectible. However, proving this status becomes more challenging with assets, even if non-liquid. Remaining current with tax obligations, including filing missing tax returns, is critical once placed in noncollectable status.

Final Steps:

In most cases, once deemed noncollectable, the IRS may file a tax lien on properties for debts exceeding $10,000. Filing a tax lien can lower FICO scores, making it prudent to explore alternative options. In cases where a lien is imminent, filing a Form 9423 and Form 12153 appeal can help avoid the filing. It’s important to note that penalties and interest continue to accrue during noncollectable status, necessitating urgent tax help.

In conclusion, filing for hardship with the IRS, specifically seeking Currently Not Collectible status, stands as a viable option for those genuinely grappling with financial hardships during the tax season. Understanding the intricacies of the application process, providing accurate financial information, and seeking professional tax assistance substantially enhance the likelihood of securing this temporary respite from collection activities.

Individuals and businesses, strategically utilizing the time afforded by Currently Not Collectible status, can work towards stabilizing their finances and exploring long-term solutions for addressing their tax debt. While CNC status does not erase the tax liability, it serves as a crucial instrument for those wrestling with the challenge of meeting their tax obligations, offering a momentary reprieve and a discernible pathway to financial recovery.

Attorney Timothy Hart

Timothy S Hart, the founding partner of the tax law firm of Timothy S. Hart Law Group, P.C. is both a New York Tax Lawyer & Certified Public Accountant. His area of expertise includes innovative solutions to solve your Internal Revenue Service and New York State tax problems, including tax settlements through the Federal and New York State offer in compromise programs, filing unfiled tax returns, voluntary disclosures, tax audits, and criminal investigations. [ Attorney Bio ]