Owing money to the IRS isn’t so bad.
Say what now?
Yep, that’s right. It’s not such a terrible thing.
Well … as long as you’re broke, that is.
Because if you have significant income or assets, the IRS is going to do everything they can to squeeze every last dime out of you. (Unless you get help. If you’re in Buffalo Grove and you need help, you’ve come to the right place.)
But if you just don’t have much, they can determine pretty quickly that they won’t be able to get much out of you. This is especially true if your income falls below a magical set of numbers that the IRS creates every year called the Allowable Living Expenses (ALE).
After all, you can’t squeeze water from a rock.
If you can demonstrate to the IRS that you have no significant assets, and that your income is below those ALEs, you can be placed into what they call Currently Not Collectible or CNC status.
Proving You’re Broke
In order to demonstrate your eligibility for this special CNC status, you’ll need to provide detailed financial information to the IRS. For low dollar tax debts, you can do the whole thing over the phone, and they can just accept your verbal statements about your income and expenses.
For larger tax debts, you’ll need to do some paperwork, called a Collection Information Statement. This form will ask a lot of very personal financial questions, including information about:
- Sources of income and monthly amounts
- Bank accounts, credit cards, and investments
- Home and mortgage or rent
- Cars, boats, ATVs, RVs, and any other vehicles you own
- Other valuables such as jewelry, artwork, and collectibles
- Monthly living expenses, including food, utilities, medical care, and more
If you have access to lines of credit or credit cards that could be used to pay off the IRS, they’re going to ask you to tap into those credit sources first. Also, they may ask you to do a cash out refinance on your home if you have equity available, or sell off your beloved motorhome that’s paid for in order to then pay off your tax debt.
If you don’t have any of that, then the IRS will look at your income, and compare it to those ALEs. If your income is below the IRS threshold, then congratulations, you can be placed into CNC status!
We’d be more than happy to do this analysis with you or anyone in Buffalo Grove to determine whether this is a viable path before wasting time calling the IRS. Schedule a time with us to review your financial picture:
What Happens Next
Once your tax debts are placed into CNC status, you won’t have to worry about nasty things like wage garnishments or money disappearing from your bank account anymore. These collection actions by the IRS will all stop. (Those in this situation in Buffalo Grove breathe a little sigh of relief.)
However, you still owe them the money. Interest and penalties will continue to accrue on the balance due, and you’ll periodically receive a bill. This is nothing to fret over, as the IRS is required by law to send you a reminder occasionally.
It’s important for you to know that CNC status is technically a temporary resolution. The IRS is theoretically required to review all CNC cases on an annual basis to determine whether or not your financial situation has changed. But, due to lack of staffing, these reviews don’t actually happen. Instead, the IRS relies on various computerized matching systems to try and identify accounts that need review.
For example, if you happen to get a really large raise at work, or change jobs for a much higher pay rate, or have a great business year if you’re self-employed, then the IRS computers will do a little happy dance and flag your account for review. Their assumption is that if you’re suddenly making more money, then they might be able to sink their teeth into some of it.
The End of the Line
One very interesting aspect of being placed into CNC status is that eventually the statute of limitations will expire.
In general, the IRS has 10 years to collect on any tax debt. There are a slew of things that extend this time period, but amazingly, CNC status is not one of them.
Here’s what this means: At the end of the 10 years, your tax debts disappear.
Yes, seriously. Poof, they just go away.
If you are in Buffalo Grove and you do owe tax debt, it’s very important to know when that 10 year period ends.
We can pull up your IRS records for you and calculate those exact dates for you. To get started on that, let’s chat:
We’re in your corner…