Randolph Law Firm, P.C.

Getting a hardship deferment on your taxes: an FAQ on CNC status

One of the themes of this blog is that even if you can't pay your tax debt in full, you shouldn't just ignore it. Instead, you shold consider the available options.

One of those is an installment agreement or payment plan. Another is making an offer in compromise (OIC), as we discussed in our previous two posts. Under certain circumstances, bankruptcy may also be an option, as we discussed in our April 9 post.

As we noted last week, if the IRs doesn't accept your OIC you can appeal. But there is also another possibility that is worth knowing about: seeking a hardship deferment.

In this post, we will answer some frequently asked questions about this process, which is formally called currently-not-collectible (CNC) status.

How do you become eligible for non-collectible status?

CNC status is based on the underlying principle that a debt collector "can't get blood from a stone." So, in a sense, you have to show the IRS that your finances are stone-like.

In other words, you have to show them that based on your assets, expenses, and income, paying your taxes would create an undue hardship.

Is there an official application?

Yes. You will need to submit Form 433-A, the Collection Information Statement. The IRS will then make a determination of the reasonable collection potential of your debt.

You've also got to file any previously unfiled tax returns.

Does getting approved for CNC status mean you're permanently off the hook for paying the taxes?

No, unfortunately it doesn't. If you have a positive change in your financial condition, the IRS can still collect on the balance of what you owe.

And even when you are in non-collectible status, the IRS can use any tax refunds you might otherwise have received to offset your debt.

What about interest on the debt while it's in CNC status?

You will still owe interest. But CNC may still be a possibility worth exploring as a way to resolve your tax debt. It makes sense to talk with a knowledgeable tax attorney about your specific situation.

 

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