Pros and Cons of IRS Currently Not Collectible Status
The pros and cons of receiving a currently not collectible status are specific to the taxpayer’s ability to pay taxes owed. If the taxpayer is unable to pay, then he or she will receive this consideration. If the taxpayer cannot pay the tax owed, and the IRS fails to collect the debt in ten years, then the taxpayer will not have to pay the debt. However, there is a ten-year statute of limitations that the IRS can exercise in the event that the taxpayer is able to begin a payment structure.
It is important to note that currently not collectible status should not be considered as a permanent form of tax debt resolution. On the pro side, if you qualify for the status, “you will not face levies (which the IRS uses to garnish your wages or put a lock on your bank account until the taxes are paid). However, on the con side, you will still be subject to federal tax liens on your home or property . . .” (Hein). If your property is sold, the money will go towards paying off your taxes, which means that you will more than likely have to pay IRS-imposed interest and penalties. Once the IRS grants you currently not collectible status, you can expect the IRS to continue to review your financial situation to determine improvement and ability to pay taxes owed.
The IRS will periodically monitor your financial situation. The IRS will review reports from third parties such as employers and banks. If the IRS determines that your income has increased, then you will no longer be eligible for currently not collectible status. “However, this financial review doesn’t apply if you’re on a fixed income (e.g. disability, pension, Social Security, etc.)” (Hein). It is possible to remain in currently not collectible status until all of your tax liabilities expire.
Who is Eligible for Currently Not Collectible Status?
Qualifying for currently not collectible status is open to any taxpayer with IRS tax debt and who specifically cannot make monthly payments. All candidates for CNC must disclose their gross monthly income—what they bring in before taxes and other deductions. Taxpayers must provide an outline of “allowable monthly expenses (expenses related to life, health, welfare, or the production of income)” (Hein). The IRS requires taxpayers to reveal their liquefiable assets to determine how much they can send the IRS today.
Lastly, taxpayers must calculate their total IRS back-tax liability. “If your allowable monthly expenses exceed your gross monthly income and your liquefiable assets are considerably less than your total IRS back-tax liability, you will likely qualify for Currently Not Collectible status” (Hein). If a taxpayer’s income situation changes—especially considering that income significantly exceeds expenses—then it is likely the taxpayer will be removed from not collectible status and be expected to return to normal payment schedules.