All taxpayers know how complicated it is to file taxes correctly, especially if you are a business owner or have multiple sources of income. One mistake can lead to grave consequences, and if you’re not careful, you could end up owing more taxes than you can pay.
The Internal Revenue Service (IRS) typically uses more aggressive collection tactics for higher taxes owed, such as $50,000 or more. This might include placing liens on your property or seizing your assets directly. In other words, you might end up with even more financial strain.
Fortunately, there are ways to avoid this. One option is to request a temporary pause in collection. Here’s what you need to know.
What is the Currently Not Collectible status?
If you owe balance due tax liabilities, but cannot pay them due to a difficult financial situation, the IRS may agree to place your account under Currently Not Collectible (CNC) status. This means the IRS acknowledges that you cannot afford to pay what you owe without serious financial hardship.
Typically, the IRS will not try to collect from accounts under CNC status. However, your tax obligations don’t simply vanish. The IRS may continue to add interest and penalties to your balance and may apply any tax refunds you’re owed to your existing debt. Your annual bills will also continue to come.
Do you qualify for CNC status?
You must demonstrate your financial hardship to apply for the CNC status. Some example scenarios include:
- You cannot pay taxes and afford basic necessities at the same time
- You are experiencing a temporary setback but expect to recover later
- You have limited income or assets that you can use to pay tax debt
- You are not employed or are significantly underemployed
You will still need to file tax returns even if you cannot afford to pay what you owe. Doing so will prevent late-filing penalties.
To request for CNC status, you can contact the IRS or respond to their notices to discuss this option.
How can a tax attorney help?
Even the most successful individuals and businesses can make tax errors. Unfortunately, these mistakes usually amount to significant tax debt for high-income earners.
If you cannot pay the amount you owe right now, consider consulting a tax attorney to help explore your legal options. They can help determine if you should request for CNC and, if you qualify, guide you through the application process.