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 the debt is bogus, other means are available. Installment agreements can be negotiated. Reductions are possible if reasonable cause can be established. Filing correct returns may be an option. The offer in compromise is available if one qualifies. However, if one cannot afford or qualify for another program; temporary hardship or “Currently Not Collectible” (CNC) may be an intermediate resolution. It’s probably not a “final” resolution.
If you owe the IRS a large sum of money but are unable to make the payments on the debt at this time, you may qualify for a hardship. The CNC program is not new, but the qualification for it is very difficult. The placement of your account in distress is not guaranteed to be permanent. In fact, it will likely only last 18-24 months. However, it might give you time to recover so you can make payments later. In rare cases, a hardship may remain until the taxes expire, but don’t count on it!
To qualify for IRS suspension of collection activity on your account, you must have filed at least 6 years of tax returns. You must also be in current tax compliance. This means you must have the correct tax withholding at your job or make proper estimated tax payments if you are self-employed. In addition, you must be able to show 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, certificates of deposit, or unlent funds in cash value in life insurance, etc.
You will be required to provide documentation from 3 to 6 months as proof of income and expenses (invoices). If you have medical expenses, get proof of those too. You may need to provide car note information as well as proof of rent or mortgage. Cable TV, cell phone, country club or health club, and credit cards will not count in calculating your scores for CNC. These items are considered unnecessary by the IRS. Under the law, the IRS is a primary creditor on 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 accepted by the IRS. In some cases, you may need to fill out forms 433A and 433B. If you call them unprepared, they may put you on a payment plan that you can’t afford. Even with proof, the IRS has set “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 on a hardship CNC, you still owe taxes, interest continues to accrue, refunds will be maintained, and a federal tax bond may be filed. You will not be required to make individual payments while the case is at CNC. No bank liens or wage liens will occur while you are at CNC. However, unless the Statute of Limitations explodes, the tax will revert to IRS collections at some point.
If you owe the IRS more than $25,000, get 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 feel you are not being treated fairly, you can file an administrative appeal or a Form 911 with the Ombudsman.
The IRS can be contacted 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 Advocacy Service is
1-877-777-4778 or TTY/TTD: 1-800-829-4059.