What Happens If I’m Unable to Pay My Taxes?
Tax trouble can happen to anyone. Whether you’re an individual taxpayer or a small business owner trying to stay afloat, tax debt is a serious issue that can snowball out of control when it goes unaddressed. The worst thing a taxpayer can do is wait for the problem to fix itself – penalties and interest will continue to accrue, leaving you with a massive liability that can seem hopeless to solve. The IRS offers options to those who owe past due taxes but who can’t pay due to their financial situation. One of those options is Currently Not-Collectible (CNC) status, and if you qualify, the IRS will temporarily delay collection activity until your financial hardship condition improves.
What is Currently Not-Collectible Status?
At the most basic level, CNC status simply means that the IRS inputs a computer code to your account indicating that you’re unable to pay your past-due taxes. The IRS must first determine that by paying your taxes, you’d be unable to meet your basic living expenses.
Before a currently not collectible (CNC) status can be declared, the IRS will require you to submit Form 433-A, B or F in order to demonstrate that after paying necessary living expenses you have no money left to make monthly payments to the IRS. Further, you must be able to prove that you don’t own any assets that could be liquidated or sold to make a lump sum payment to the IRS. The fact that you have nothing worth the IRS taking is not exactly an enviable position to be in, however, you can leverage your hardship as a short-term resolution until your financial situation improves. Once your account is placed in CNC status, the IRS will suspend all collection activities such as wage garnishments and bank levies. As such, it will back off, give you time to sort out your financial situation before attempting to resume collection.
What is CNC Status? At the most basic level, CNC status simply means that the IRS inputs a computer code to your account indicating that you’re not supposed to pay taxes. This means that the IRS will suspend all collection activities directed against you. Basically, taxes will not be levied against you, your assets or your income. This will happen when the IRS determines that you’re unable to continue paying your taxes and meeting your reasonable living expenses. As such, it will back off, give you time to sort out your financial situation before attempting to resume collection.
However, CNC status doesn’t mean that your tax debt has been forgiven. It simply means that the IRS has suspended collection. Legally, the IRS can attempt to collect taxes for up to 10 years. It is after 10 years that taxes cease to be enforceable against you. This, however, doesn’t mean that you can simply apply for CNC, wait out the IRS for a decade and your tax debt will be wiped clean. This can cause a significant damage to your credit rating – and a host of other downsides we’ll look at shortly. The bottom line here is that CNC status means that the collection of your tax debt is suspended for a time period.