There are a number of ways to get help when you owe the IRS money. You can set up an installment plan, ask for an offer in compromise, or even declare bankruptcy (though we only recommend that as a very last resort). All of these alleviate the burden of back taxes, at least temporarily. Another option is to apply for Currently Not Collectible/Hardship status.
Currently Not Collectible (CNC) is what the IRS calls you when you owe them back taxes but you can’t afford to pay both your tax bills and basic living expenses. If you have CNC status, the IRS stops all efforts to collect unpaid taxes from you until such time as you can prove the ability to cover basic living expenses with enough left over to pay your taxes as well. During this time, they will not solicit payments from you, nor will they garnish your wages or place liens on your property. They will, however, continue to apply interest and penalties to your tax debt (to be paid later), and will claim any tax refunds you receive to put toward that debt.
To apply for CNC status, you’ll need to show the IRS your financial documents so they know how difficult your situation is. You’ll also need to complete and file any missing or delinquent tax returns. The IRS will review your returns every year you are in CNC status to evaluate whether your income has risen enough to allow for both reasonable living expenses and tax payments, and will likely remove your CNC status (or at least approach you about it) once your income starts to increase.
Clearly, CNC status is for people who are dealing with severe financial hardship. It’s not for those who live extravagant or even comfortable lifestyles, and it’s not a loophole to avoid paying tax debts. It’s either a life raft keeping people afloat when there’s no other way to do it short of bankruptcy, or it’s a stopgap that allows struggling taxpayers to get back on their feet. It’s not a fun status to have to claim. But if it’s what you need to get back on top of your financial situation, there’s no shame in asking for it.
Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.
There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.