Currently Not Collectible – A Taxpayer’s Shield

October 17, 2019

By Daniel Gibson

When it comes to collecting tax, the IRS’ position is: We want it all and we want it now.

However, there are many taxpayers who owe the IRS but can’t pay the amounts that are due and pay for reasonable living expenses. If the taxpayer files a Form 433 (with supporting documentation) proving that they cannot both pay the tax and living expenses, the IRS will consider placing the taxpayer in a status known as currently not collectible (CNC). If the taxpayer is placed in CNC, the IRS will stop levies, threatening letters and other collection efforts. In other words, the IRS will leave you alone. How often is this done? The Treasury Inspector General reports that there are some 5 million delinquent accounts classified as CNC.

However, taxpayers should be aware of the following when placed in CNC.

  • The tax continues to be owed.
  • Interest and penalties continues to accrue.
  • Refunds from future returns filed will be taken and applied against balances owed.
  • Statute of limitations (normally, ten years from the date the tax is assessed) for the IRS to collect the tax continues to run.
  • IRS will monitor the taxpayer’s financial status either by reviewing future returns filed or requesting an updated Form 433.
  • All future returns and tax payments must be filed and paid timely.

So with that in mind, consider the fact that the IRS may at some future date, based on an improved financial status, remove the CNC shield and re-engage its collection efforts.

On the other hand, taxpayers who don’t improve their financial status can remain in CNC until the statute of limitations expires, in which case Father Time will allow the debt to be permanently removed and forgiven.

Currently not collectible does act, at least temporarily, as a shield and allows taxpayers relief from IRS intrusions into bank accounts, wages and property. 

If the taxpayer can leverage the expiration of the statute of limitations on collection, it can be a viable strategy for resolving the taxpayer’s tax debt.

About Daniel Gibson

Daniel Gibson provides accounting, tax planning and consulting services to real estate and services industries and is a member of the AICPA and New Jersey Society of Certified Public Accountants.

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