Delayed Collection and Currently Not
Collectable Status
Learning Objective
After completing this section, you should be able to:
Recognize the reasons the IRS may close a case as uncollectible.
Delayed Collection
IRS policy states that whenever the taxpayer raises a question or presents information creating reasonable doubt as to the correctness or validity of an assessment, “reasonable forbearance” will be exercised with respect to collection efforts as long as the interests of the government are not jeopardized.
This does not mean the taxpayer’s debt will be forgiven, or a tax lien will not be filed, or interest and late payment penalties do not accrue
It only suspends collection action until the taxpayer has the ability to pay the tax.
Accounts Currently Not Collectible Stop collection by
Becoming Uncollectible
Do you have negligible assets subject to levy by the IRS and no income beyond that which is absolutely necessary to cover your living expenses? If the IRS determines that you cannot currently pay any of your tax debt, the IRS may temporarily defer collection against you under the “undue hardship” rule. If you are one of
these uncollectible cases, which the IRS often reports as “currently not collectible” (CNC), the revenue officer will remove your case from the active inventory until your financial condition improves.
There are many reasons the IRS may close your case as uncollectible:
collection would cause an undue hardship for the taxpayer, leaving him or her unable to meet necessary living expenses
inability to locate the taxpayer’s assets inability to contact a taxpayer
death of a taxpayer with no significant estate
bankruptcy or suspension of corporate business activities and no remaining assets special action, such as with the accounts of military personnel in a combat zone
If the IRS does temporarily close your case as “uncollectible,” your debt will increase because interest and penalties will be charge until you pay the debt in full or until the statute of limitations for collection expires. Generally, if you owe over $5,000, a Notice of Federal Tax Lien will be filed.
You will continue to owe the taxes and penalties, and interest will accrue. Once the IRS has earmarked you as “uncollectible,” they will temporarily suspend further collection activity.
Before closing your case for the reason of “undue hardship,” the IRS will request a Collection Information Statement (Form 433-A, Form 433-B or Form 433-F) so they can review your finances. The review is similar to the review of an Installment Agreement request (see previous section). And, if your assets are negligible and your net disposable income is negligible, you will most likely be classified as “uncollectible.” Note: If you (or your spouse) are self-employed or if you own a business, you only need to complete the 433-A. If you are an employer (you have employees that work for you), complete the 433-B. In some cases, you may need to complete both forms.
The IRS will periodically re-examine your finances to see if your financial condition has improved to the point that some payment can be demanded. This financial review will occur about once a year, and you must then complete a new financial statement. The IRS may question you by phone or in conference about this updated financial information or simply request that you complete and return a form by mail. As with all information you give the IRS, make certain that what you say is completely truthful.
The IRS may also monitor your financial condition by computerized review of your tax returns. For example, the IRS computer may “trigger” your return if your reported gross income exceeds a pre-established amount.
Note: the IRS only has ten years from the date of assessment to collect delinquent taxes. Once the statute expires, so does your liability.
Millions of Americans have remained “uncollectible” for years and completely avoided paying their back taxes. Obviously, these individuals could not title assets in their name or have significant income available for IRS levy. Still, many of these “uncollectible” enjoyed relatively comfortable lifestyles.
If you have no valuable assets in your name, a small income and expect your bleak financial situation to continue, then remaining “uncollectible” may be your most practical remedy. However, if you do not intend on remaining “uncollectible” until the statute of limitations for collection expires, or you do not want the tax liability hanging over your head, you may want to file an Offer in Compromise while you are registered as “uncollectible.” Taxpayers have been able to get offers accepted, while being “uncollectible,” for as little as $1,000 or less when they have been able to borrow money “strictly for the purposes of settling their tax debt in an Offer In Compromise.”
Revenue Officers have the authority to determine that a taxpayer’s account is Currently Not Collectible (CNC)
While declaring an account CNC does not eliminate the assessment, it does stop current efforts to collect the tax
Collection can resume any time before the expiration of the 10-year Collection Statute Expiration Date (CSED)
The decision to place an account in CNC status is usually based upon the information in a Collection Information Statement (CIS) that is no more than 12 months old.
Accounts can be placed in CNC status, even when the taxpayer’s CIS reflects assets or income which can be levied, as long as the collection of the delinquent taxes would prevent the taxpayer from affording necessary living expenses.
Each taxpayer’s circumstances are unique- factors, such as health and age, are also considered.
If monthly payments of at least $25 per month can be made, the IRS will require the taxpayer to enter into an installment agreement before placing the account in CNC.
If the taxpayer’s account is deemed to be CNC, the Revenue Officer will document the decision on Form 53 (Report of Currently Not Collectible Taxes)
A lien will be filed before an account is declared CNC if the Revenue Officer believes collection efforts will be successful in the future, or if the total tax liability is $5,000 or more.
The decision to place an account in a currently not collectible (CNC) status is determined by a revenue officer and an automated collection system (ACS) that bases it on the collection information submitted by you. ACS, a branch of the IRS, is the first contact most taxpayers have with the IRS after receiving a past-due tax bill. As its name suggests, ACS is a large, computer driven system that attempts to collect on past due tax liabilities. ACS is responsible for sending out nearly all of the various collection letters and legal notices required to collect delinquent tax liabilities
Collection Due Process Hearing (CDP)
When a Collection Due Process (Form 12153) request for hearing is filed, all enforced collection action stops.
The request for a CDP hearing must be sent to the Service Center which sent the Final Notice of Intent to Levy (Letter 1058).
Once the request is received by the IRS, the practitioner will be contacted in an attempt to resolve the tax issue.
Chapter 8 Review Questions
1. Once the IRS temporary closes your case as uncollectibleA. You taxes due will not ever be collectible. B. Your interest and penalties will be dismissed.
C. You will continue to owe the taxes and penalties and interest will accrue. D. The statute of limitations will not apply.
2. The IRS may close your case for the following reasons EXCEPT for A. Undue hardship.
B. Death of a taxpayer with significant estate. C. Inability to locate taxpayers’ assets. D. Special action