The Currently Not Collectible (CNC) program is an IRS program designed to provide relief from collection activities for taxpayers who would encounter undue financial hardship if they had to pay their tax debt. The IRS requires you to provide information relating to your income, expenses and assets.
During the period for which the IRS determines that the individual meets the requirements for CNC status (discussed below), it suspends collections activities, including any bank account levies, wage garnishments, or other asset seizures. However, the CNC program only stops collections activities temporarily. It does not erase the taxpayer’s debt. The taxpayer will still be responsible for paying their back taxes if their financial situation improves, including interest and penalties accrued during the suspension period.
Qualifying For Currently Not Collectible Status
Calculating Your Income
In order to qualify for CNC status, you must demonstrate a financial hardship that leaves little or no room to pay your tax debt after you have paid your living expenses. To determine whether you face a financial hardship, the IRS will first calculate all your income including:
- Interest and dividends
- Self-employment income
Calculating Allowable Living Expenses
The IRS will then determine how much money you are allowed to deduct from your income to pay reasonable living expenses, which are calculated using a combination of national and local standards, as follows:
- Housing and utilities (local standards): The housing and utilities allowance is calculated at the county level. For Palm Beach County, Florida (which includes Boca Raton), the monthly housing and utilities allowance for a family of two is $1,980 per month.
- Healthcare expenses (national standards): The IRS allows you to deduct your health insurance premiums and the greater of your actual out-of-pocket healthcare expenses or the standard amount. For taxpayers under the age of 65, the monthly out-of-pocket healthcare expenses allowance is $52 per person. For those over the age of 65, it is $114 per person.
- Transportation costs (local and national standards): Ownership costs (such as the monthly payment on a car) are calculated using national standards and are $497 monthly for one car and $994 monthly for two cars. Operating costs (such as gas, repairs, insurance, etc.), are calculated at the metropolitan level. In the Miami metropolitan area (including Boca Raton), this is $338 monthly for one car and $676 monthly for two cars.
- Food, clothing, and miscellaneous (national standards): For a family of two, the national standard allowance for food, clothing, personal care products, and other miscellaneous expenses (combined) is $1,202 per month.
In addition to the national and local standards, you are permitted to deduct the following items:
- Court ordered payments such as alimony and child support
- Current monthly taxes including federal and state income taxes, and FICA taxes
- Term life insurance premiums
Find Out What is Left Over
Once the IRS has subtracted these standard living expenses from your income, any amount remaining is considered to be disposable income, and, therefore, available for making back tax payments. For example, if you have $250 left over per month, the IRS will expect you to pay $250 in a monthly installment plan. However, if there is nothing left over or your monthly income is equal to your standard allowable living expenses, the IRS may consider you to have a financial hardship and place your account into CNC status. If the 10-year collection statute expires while you’re in CNC status, you no longer have to pay the back tax debt.
Learn More About Currently Not Collectible Status from East Coast Tax Consulting Group
We’ve provided you with a brief overview of the general requirements individuals must meet in order to qualify for Currently Not Collectible status. The details of your financial situation likely are significantly more complex, and, even if you think you might qualify, you must still prove that you qualify to the IRS through extensive financial documentation. To obtain Boca Raton back taxes help, including assistance with CNC status, contact the tax advisors at East Coast Tax Consulting Group by calling 866-550-7655.