Currently Not Collectible (CNC): An effective treatment, not a cure
When facing a substantial tax liability, most people discover that the IRS beats the same drum, over and over, in written correspondence and over the phone:
If you owe back taxes, pay them, and if you can’t pay them now, set up a payment plan.
IRS agents at all levels are trained to collect, which often means encouraging Installment Agreements. For some, payments may be a realistic option; but what if even a small monthly payment is too much?
In these situations, the IRS provides CNC, a temporary form of relief for those who can not make monthly installments. Those who apply for CNC must demonstrate their inability to pay by detailing their monthly expenses using IRS guidelines. If the application is approved and CNC is granted, the IRS agrees not to demand payment while the taxpayer is classified as CNC. Eligibility status may be reviewed each year, and those who do not still meet the financial requirements may be removed from the program.
CNC can be an excellent option for those who are financially struggling, but as you consider your tax issue, you should be aware that CNC has limitations:
- The liability will remain and continue to accrue all appropriate penalties and interest.
- CNC status does not prevent the filing of a lien, nor does entry into CNC promise a removal of any liens. If property encumbered by a tax lien is sold, the lien will be enforced, and proceeds from the sale will be sent to IRS.
- The IRS will continue to keep all tax refunds up to and including the amount of the liability.
- If CNC status is lost, the IRS may begin aggressive collection action quickly, including issuing levies and garnishments.
For these reasons, CNC should not be seen as a cure-all. But when used strategically, CNC can be an effective tool in the overall effort to seek tax resolution. It can provide temporary relief and even help bridge to a more permanent outcome.
To learn more about CNC and other ways we can help you build a bridge to a successful tax resolution, contact WatchGuard today.