Most taxpayers can work with the IRS to pay tax debt through an installment agreement or offer in compromise, but sometimes people don’t have the money to afford those options. When these individuals can barely afford basic necessities and are unable to afford other tax relief options, they may gain tax relief by applying for financial hardship and requesting that their account be placed under “currently not collectible” (CNC) status.
Are you suffering from financial hardship and can’t afford an offer in compromise? Do you owe more than $10,000 to the IRS or California Franchise Tax Board? Call tax attorney Jin Kim at (916) 299-9913 for a free tax consultation and find out whether you qualify for currently not collectible status.
When a taxpayer suffers from financial hardship, the IRS or the California Franchise and Tax Board (FTB) may provide some reprieve from collections by placing the taxpayer under currently not collectible status. This means that the tax agency will temporarily suspend collection efforts for the delinquent tax. The suspension lasts one year with the IRS.
Temporary Relief From IRS & FTB Collections
This relief from tax collection isn’t permanent. However, the temporary delay to collections can be extended. The extension will depend primarily on the financial status of the taxpayer. If the agency finds that the taxpayer’s finances have improved, they will resume collection. Evaluation periods will depend on whether the taxpayer owes delinquent taxes to the IRS or FTB. If the delinquent tax is owed to the IRS, the evaluation is done one year after being placed under not collectible status. If the tax is owed to the FTB, evaluation is done more regularly at three, six, and nine-month intervals.
Why It’s Hard To Apply
Applying for financial hardship can be difficult, especially if you’re doing it on your own. The process isn’t as straightforward as other tax relief options, perhaps because the IRS doesn’t have an incentive to promote this tax relief option. Nevertheless, it remains a valid, and sometimes necessary, tax relief option. The important point is to prove to the IRS that you’re suffering from financial hardship. Documents showing your financial condition will be required by the agency before they approve your request. This means exposing all your assets, debts, and expenses to the agency concerned.
When Are Hardship Requests Denied?
Expenses are the most common reason why financial hardship requests are denied. The IRS uses average expenses across the country to determine whether a taxpayer’s expenses are reasonable. This means that a taxpayer living in a state with high costs of living (such as California) can have a hard time getting the IRS to approve their request.
How To Apply For Currently Not Collectible Status with the IRS & FTB
If you owe the IRS, you will have to personally contact the IRS to apply for financial hardship relief. You can do this by phoning the IRS and asking to be placed under financial hardship status. The IRS may have you complete a Collection Information Statement and submit documentation to prove your expenses. Likewise, if you owe delinquent taxes to the FTB you will need to fill out a Financial Statement and supply supporting documentation.
While currently not collectible status may provide temporary relief, it doesn’t mean that the tax will just go away. Penalties and interest will continue to accrue. If you can still make payments on the delinquent tax, then payment plans or an offer in compromise are better options. However, if you’re really struggling to even make basic payments, then a tax lawyer should be able to advise you on how to move forward regarding your situation. Tax law can be confusing and difficult, especially if it involves applying for financial hardship relief. The good news, however, is that you don’t have to do it alone.
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