The resolution of a debt with the IRS can be achieved by different methods; the obvious one is full payment. If one is unable to pay in full or believes that the debt is bogus, other means are available. Installment payment agreements can be negotiated. Reductions are possible if reasonable cause can be established. Filing corrected returns may be an option. Offer in Compromise is available if one qualifies. However, if one cannot afford or qualify for another program; the temporary or “currently unrecoverable” (CNC) hardship may be an intermediate resolution. This is probably not a “final” resolution.
If you owe the IRS a large sum of money, but don’t have the ability to make debt payments right now, you may qualify for a hardship. The CNC program is not new, but the qualification is very difficult. Placing your account in difficult situations is not guaranteed to be permanent. In fact, it will likely only last 18-24 months. However, it may give you time to recover and make payments later. In rare cases, a hardship can remain until taxes expire, but don’t count on that!
To qualify for suspension of collection activity on your account by the IRS, you must have filed at least tax returns for the last 6 years. You must also be in current tax compliance. This means that you must have correct tax withholding on your job or make adequate Estimated Tax Payments if you are self-employed. Additionally, you must be able to demonstrate that your necessary living expenses meet or exceed your current income. Also, 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 non-borrowed funds in cash value in life insurance, etc.
You will be asked to provide 3-6 month documentation as proof of income and expenses (invoices). If you have medical expenses, get proof too. You may be asked to provide car note information as well as proof of rent or mortgage. Cable TV, cell phone, country club or health club fees, and credit cards will not be taken into account when calculating your CNC qualifications. The IRS considers these items unnecessary. By law, the IRS is a primary creditor for most debts.
When you call the IRS, be ready to give them a complete estimate and fax or mail 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 that the IRS accepts. In some cases, you may need to complete Forms 433A and 433B. If you catch them off guard, they may put you on a payment plan that you can’t afford. Even with testing, the IRS has set “national standards” for many items and in many cases you will not be allowed costs in excess of that amount.
If your account is placed in a CNC due to financial hardship, you still owe taxes, interest continues to increase, refunds will be maintained, and a federal tax lien may be filed. You will not be required to make individual payments while the case is at CNC. There will be no bank lien or salary lien while you are at CNC. However, unless you exploit the Statute of Limitations, the tax will revert to IRS Collections at some point.
If your debt with the IRS exceeds $ 25,000, seek professional help. A good CPA, enrolled agent, or tax attorney can help you deal with the IRS. The fees you pay will be well spent if you hire a competent and experienced professional. If you can’t afford professional help, the IRS has free help through the Office of Appeals and the Taxpayer Advocate Service. If you think you are not being treated fairly, you can file an administrative appeal or Form 911 with the Advocate.
You can contact the IRS at 1-800-829-1040 for general questions. You can contact the IRS Automated Collection Service at 1-800-829-7650. The telephone number of the Taxpayer Ombudsman Service is
1-877-777-4778 or TTY / TTD: 1-800-829-4059.