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Tax Lawyer – Currently Not Collectible

Sometimes a taxpayer simply cannot pay his delinquent taxes because he has no assets and no present or future “disposable” income, or because collection of the tax due would create undue hardship. In such a case, the Service may determine that the account is CNC and suspend all collection and enforcement activity for the time being.

Revenue Officers, Appeals Officers, and Settlement Officers may report accounts as CNC. Tax examiners in Collection and Case Processing may report as CNC those accounts that meet certain (nonpublic) criteria. Service employees file liens for cases with a balance over $5,000 that they report as CNC. Upon a determination of CNC status, the Service must immediately release any levies on wages or salary. I.R.C. § 6343(e); While the Manual gives many reasons why an account should be put into CNC, the most common is that collection would create an economic hardship. This determination, needless to say, follows the review of the CIS. In essence, if the taxpayer does not have assets that can be used to pay the debt and his expenses equal or exceed his income, the matter is ripe for CNC status.

The reporting of an account as CNC does not affect the validity of the underlying tax assessment. The tax is not forgiven or compromised and interest and penalties continue to accrue. If the Service files a tax lien, it remains in force. In addition, the Service’s computers are programmed to notify the field collection function when the taxpayer’s income increases significantly and when the expiration of the SOL on collection is imminent. (mandatory and systemic follow up).

During the period the account is in CNC status, the Service will automatically offset any future refunds due the taxpayer against the delinquent tax liability. As a practical matter, many accounts that are CNC are eventually satisfied by refund offsets or by operation of the federal tax lien when the taxpayer sells property.