Taxpayers owing outstanding federal income tax liability have various options for dealing with the delinquent taxes, including installment payment agreements, offers in compromise and bankruptcy. One option that doesn’t require the taxpayer to pay any money out of the pocket is to be placed in currently not collectible status (“CNC”).
What is CNC. CNC means the IRS will not try to collect, typically for one to two years, due to the taxpayer’s inability to pay tax. In order to obtain CNC, the taxpayer must typically demonstrate that he or she lacks the income or assets that could be subject to levy or if a levy would prevent the taxpayer from meeting necessary living expenses.[1]
CNC Successfully Obtained. I recently obtained CNC status on behalf of a widowed, elderly taxpayer who owed over one hundred thousand dollars in outstanding income taxes. The taxes were due from a since deceased husband who had left the spouse on the hook for tax debt due even after he passed away. We considered an innocent spouse petition but concluded that the elderly widowed taxpayer did not have the funds to pay the IRS given that her income consisted of social security, a small pension, and no assets of significant value. Therefore, we provided a financial statement along with an explanatory cover letter to the IRS explaining and documenting her financial position. Nearly ten months later, the taxpayer received the letter linked to this article approving CNC. CNC is a legitimate method for holding the IRS at bay, perhaps until the IRS 10 year collection statute of limitations expires making the tax debt forever uncollectable.
Practice Point: Obtaining CNC status took almost 10 months in this instance. Pre-Covid, when I was working with an assigned IRS Revenue Officer, CNC could be approved much quicker. We will need to see if the lengthy time period for approval is a new development with the IRS.
About the author: Jared M. Le Fevre is a tax attorney and partner in the Tax, Trusts and Estates Practice Group of Crowley Fleck PLLP. Mr. Le Fevre represents taxpayers before the IRS, IRS Independent Office of Appeals, Tax Court, Federal District Court and state tax agencies throughout Montana, Wyoming, North Dakota, Idaho, and Utah. Mr. Le Fevre is involved in federal and state and local tax audits, appeals, and tax resolution throughout these western states. Mr. Le Fevre also advises clients on the tax effects of business and real estate transactions.
[1] IRM 1.2.1.6.14.
2021.03.08 Notice from IRS re Balance in Currently Not Collectible Status