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Getting the IRS Off Your Back When You Can’t Pay Diddly Squat


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5/15/2018
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Getting IRS to Put You on Currently-not-Collectible Status

Getting the IRS Off Your Back When You Can’t Pay Diddly Squat

What do you do when you’ve gone on extension and October rolls around and you have to file your Tax Return, but you still don’t have the money to pay – and a nasty notice arrives in the mail!  Amount Due - $16,764. Pay Immediately.  You have several options that we cover in some of our eBooks, ranging from setting up an Installment Agreement to submitting an Offer-in-Compromise.  But, what do you do if your business has taken a downturn, the commissions aren’t rolling-in, or you are overextended? To put it colloquially, you can’t pay diddly squat.

You are in luck! The IRS has a status called Currently Not Collectible (“CNC”) status for hardship cases.  IRS Policy Statement 5-71 states, “if there are limited assets or income but it is determined that levy action would create a hardship, the liability may be reported as currently not collectible. A hardship exists if the levy action prevents the taxpayer from meeting necessary living expenses. In each case a determination must be made as to whether the levy would result in actual hardship, as distinguished from mere inconvenience to the taxpayer.”  You can even get placed into CNC status over the phone with an ACS call-center Operator if you owe $10,000 or less!

According to IRM Section 5.16.1.2.9(6), verification of a financial statement is not required if the aggregate unpaid balance of assessment is less than $10,000 currently, and at least one of the following conditions exists:

  • The taxpayer has a terminal illness or excessive medical bills;
  • The taxpayer is incarcerated;
  • The taxpayer's only source of income is fixed income such as Social Security, welfare, or unemployment; or
  • The taxpayer is unemployed with no source of income.  While the IRS doesn’t list “under-employed” or “financial hardship” under this section, difficulty making ends meet will definitely help you qualify.

If you owe more than $10,000, as in the example above and you will need to fax in Forms 433-A and 433-B to be reviewed.  When you call in to IRS and your account is placed in Currently Not Collectible Status, then your case is taken out of collection inventory and placed in “suspense” by adding Transaction Code (“TC”) 530 and Closing Code (“CC”) 24-32.

Your account can be listed as “Currently Not Collectible” or “CNC” at any point in the collection process. Revenue Officers (RO), Appeals Officers (AO), and Settlement Officers (SO) may report accounts as CNC.

Accounts listed as “Currently Not Collectible” due to a hardship, generally require you to fill out and submit a Form 433-A or 433-B. See I.R.M. 5.16.1.2.9.

Upon a determination of CNC status, the Service will immediately release any levies on wages or salary. I.R.C. § 6343(e); I.R.M. 5.16.1.2.9(7).  However, since offsets from Social Security, Disability Payments or other federal programs may not occur until the next month. In hardship cases, you can submit a Form 911 to the local Taxpayer Advocate requesting refund of the levied upon amount. In doing so, the burden is on the taxpayer to show that it is indeed a hardship. Usually, the Taxpayer Advocate will require a completed and signed Form 433 A or 433 F (collection information statements (“CIS”)) to accompany the Form 911.

For accounts where the aggregate unpaid balance of assessment is above $100,000, the following additional verification is required under IRM Section 5.16.1.2.9(8):

  • Full credit report on individuals. The IRS employee must ask the taxpayer to provide a copy of the credit report before the IRS employee orders one. An IRS inquiry on a taxpayer's credit report will affect the taxpayer's credit score. (Not all IRS employees are aware of this new IRM provision.)
  • Motor vehicle records.
  • Courthouse record check, online or in person, for real or personal property ownership.

But while this review is pending, Sec. 6343(e) requires the immediate release of a levy on wages when an account is placed in CNC status. IRM Section 5.11.2 states the steps that should be taken to accomplish the timely release. IRS personnel must take swift action to ensure that wage levies are released, even prior to declaring an account CNC, because failure to do so would create a further economic hardship.

When the IRS verifies a hardship determination, it cannot issue or leave in place a levy to force a taxpayer to file an unfiled return. Vinatieri, 133 T.C. 392 (2009), says that the IRS must release a levy when economic hardship exists and the taxpayer still is not compliant and has delinquent unfiled tax returns. The case discusses Sec. 6343(a)(1)(D) regarding economic hardship and Regs. Sec. 301.6343-1(b)(4), which requires release of a levy that creates an economic hardship, regardless of the taxpayer's noncompliance with the filing requirements.



Category: Tax Law


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