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Are you eligible for IRS “Currently Not Collectible” status?

Let us say that you are a sole proprietor with a fledgling business. While you filed your tax return this year, you could not send payment to the Internal Revenue Service. You then received a bill for the amount owed, plus interest and penalties, and you do not know what to do about it because you have no money left in your monthly budget.

Paying your bills

Like many other people, you may live paycheck to paycheck. You are making enough money to pay your monthly bills, but even that is a struggle at times. After taking care of the mortgage, utility bills, car payment and other necessities, there is usually nothing left to take the family out for an inexpensive dinner, let alone to pay your tax bill.

About CNC status

Given your financial situation, you may be the type of taxpayer who is eligible for “Currently Not Collectible” status. If you qualify, the IRS would not pursue collecting the amount due, but would basically shelve your case, at least for the time being. You would continue to file your annual tax returns, and the IRS would periodically send a letter inquiring about your current financial status, a practice that can continue for up to 10 years. If you are due refunds, the IRS may apply them to the obligation. However, they would not try to collect by other means, such as levying your income.

Seeking help

An attorney experienced with helping people who can qualify for the CNC designation will tell you that the IRS will require verification of your financial position. They will want to know about your income and expenses, information you can expect them to review annually, and whether you have the ability to pay your tax obligation by selling an asset or obtaining a loan. Your business may take off and, in the future, making your tax payments may not be a problem. In the meantime, however, CNC status is an option for you to explore.

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