Financial Hardships that Prevent the IRS from Collecting on You

No one ever wishes a tax debt on themselves, but if most of us were given a choice, we'd definitely have a preference over when we'd have to deal with one. Unfortunately, it doesn't work that way. You'll get notified of a tax liability at a time when it's probably least convenient. Maybe you'll be juggling work and school, or trying to get married and buy a house. Maybe you're trying to make ends meet with a new child. Or maybe you're just stretched way too thin, scraping by from paycheck to paycheck. The good news is that your tax debt doesn't necessarily have to make a bad situation worse.

There are several resolution options to consider when you have an IRS issue. Obviously, if the reported debt is accurate and you had the money, you'd just pay it off; but that probably isn't an option for you. Given the tough economic circumstances many Americans find themselves in, the IRS has designed plans to allow taxpayers to satisfy debts over time rather than in one lump sum. These plans vary in complexity, both in request and eligibility guidelines. In certain instances, though, the government will determine that an individual does not have the means to even make regular payments toward his or her debt; ultimately, these taxpayers are classified as Currently Not Collectible.

What It Means to be "Not Collectible"

Currently Not Collectible, or CNC, means exactly what it says: the IRS cannot pursue collection efforts against you given your current financial status. In other words, forcing you to pay back your tax debt would create a financial hardship for you and/or your family. When reviewing your living situation, the IRS considers factors such as unemployment, health, your ability to meet your current financial obligations and what types of assets you possess that could be used to help satisfy the liability. After this assessment, the government may determine that repayment of the debt could create an unmanageable hardship and place you in CNC status.

Not Collectible status is typically a temporary classification assigned by the IRS, which will be open to periodic review. If they determine at some point in the future that your situation has improved in such a way that paying toward your debt is feasible, you may be required to begin making restitution. It's entirely possible, however, that your situation will not change. Unfortunate as that may be for your day to day standard of living, it can also mean indefinite reprieve from paying your tax debt.

Are you Currently Not Collectible?

When you're reviewing finances to determine your ability to pay, it's important to know what to look for. First, the IRS will look at what your allowable expenses are; meaning, there are certain monthly bills that are not considered essential living expenditures. Credit cards payments, for instance, don't supersede your tax debt. There are also procedures to follow when working with the IRS which can be tricky. Understand that their job is to get you to pay, period.

When you're trying to negotiate a reasonable payment with the IRS or no payment at all, keep in mind what you're getting into. Whatever payment arrangement that's made will require you to pay the agreed upon amount for an extended period of time, so there's little margin for error. It's smart to find a licensed tax professional that's versed in dealing with the IRS. Such an individual can work to make sure you get the lowest payment allowable by law or, if applicable to your circumstances, placed in Currently Not Collectible status. Your tax debt's never going to be welcomed, but there's no reason it shouldn't be manageable with the proper help.

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