the IRS May Declare You “Currently Not Collectible”
If you do not have the means to pay taxes owed, have little assets that the IRS can levy, no income above the minimum need to cover necessary living expenses, you would most likely be able to be considered “currently not uncollectible (CNC)” to the IRS. Being considered “uncollectible” to the IRS means that they can temporarily pause collections against you under the IRS hardship rule.
If you qualify for this, you still owe the IRS money and interest will continue to accrue. Moreover, a Federal tax lien will be placed for all tax years showing an outstanding balance. However, all collection activities must be temporarily suspended against you. The IRS will then continue to monitor your financial situation to see if it improves to a point where they can demand payment. This review happens normally once a year. You may be required to send an updated financial statement every year or two for them the IRS to review.
These statements must be accurate because they will compare it to filed tax returns to make sure everything matches. One important thing to understand is that someone who receives this status can lose it if the taxpayer create new unpaid tax liabilities in the future or misses a tax filing.
One important thing to note about being considered uncollectible is that the IRS statute of limitations is still running for those back taxes owed. The statute of limitations lasts 10 years on IRS taxes due, if they are not collected in this period, they can no longer collect on these amounts (with some exceptions).
Many people have been declared uncollectible for a period of years and have ended up owing no tax once that statute of limitations for those years owed expire.
Generally, if a taxpayer has un-filed tax returns, a CNC is not an option. In certain cases, if a tax levy is present, the taxpayer may get a CNC approved.
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