Resolution of a debt to the IRS can be accomplished by different methods; the obvious one is full payment. If one cannot full pay or believes the debt is bogus, other means are available. Installment Agreements may be negotiated. Abatements are possible if reasonable cause can be established. Filing corrected returns may be an option. The Offer-in-Compromise is available if one qualifies. However, if one cannot pay or qualify for another program; the temporary hardship or “Currently Not Collectable” (CNC) may be an intermediate resolution. It is likely not a “final” resolution.
If you owe the IRS a large sum of money but do not have the ability to make payments on the debt right now, you might qualify for a hardship. The CNC program is not new, but qualification for it is very tough. Getting your account placed in hardship is not guaranteed to be permanent. In fact, it likely will only last 18-24 months. However, it might give you time to get back on your feet so that you can make payments later. In rare cases, a hardship may remain until the taxes expire, but don’t count on it!
In order to qualify for suspension of collection activity on your account by IRS, you must have at least the last 6 years tax returns filed. You must also be in current tax compliance. This means that you must have correct tax withholding at your job or be making proper Estimated Tax Payments if self-employed. In addition, you must be able to prove that your necessary living expenses meet or exceed your current income. Furthermore, you must not have any substantial “liquid assets.” Liquid assets are things like bank accounts with large cash balances, money market funds, stocks, CDs, or un-borrowed funds in cash value in life insurance etc.
You will be required to provide 3-6 months documentation on proof of income and expenses (bills). If you have medical expenses, get proof of them as well. You may be required to provide car note information as well as rent or mortgage proof. Cable TV, cell phone, country club or health club dues, and credit cards will not be factored in when calculating your qualifications for CNC. These items are considered unnecessary by IRS. Under the law, IRS is a senior creditor to most debts.
When you call the IRS, be ready to give them a complete budget and fax or mail them the proof of your situation. At http://www.irs.gov, you can download Form 433F. This form will help you organize your budget in a format IRS accepts. In some cases, you may need to fill out Form 433A & 433B. If you call them unprepared, you may get placed into a payment plan you cannot afford. Even with proof, the IRS has established “national standards” for many items and you will not be allowed costs in excess of that amount in many cases.
If your account is placed in a hardship CNC, you still owe the taxes, they continue to accrue interest, refunds will be kept, and a Federal Tax Lien may be filed. You will not be required to make individual payments while the case is in CNC. No bank levy or wage levy will occur while in CNC. However, unless the Statute of Limitations blows, the tax will go back to IRS Collections at some point.
Should your IRS debt exceed $25,000, please get professional help. A good CPA, Enrolled Agent or Tax Attorney can help you deal with IRS. The fees you pay will be well spent if you hire a competent and experienced professional. If you cannot afford professional help, the IRS has free help in the form of the Appeals Office and the Taxpayer Advocate Service. If you feel that you are not being treated fairly, you can file an administrative appeal or a Form 911 with the Advocate.
The IRS can be reached at 1-800-829-1040 for general questions. The IRS Automated Collection Service can be reached at 1-800-829-7650. The Taxpayer Advocate Service phone is
1-877-777-4778 or TTY/TTD: 1-800-829-4059.