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CNC status and tax debt: Can you show financial hardship?

This is a follow up to a post we did earlier in the year on currently-not-collectible (CNC) status.

In our January 13 post, we noted that when agreeing to classify your tax debt as CNC, the IRS is essentially admitting that you can't get the proverbial blood from a stone. It is saying that you can't both pay your tax debt and meet your reasonable living expenses.

In this post, we will elaborate on a couple of aspects of this process that are important to know if you are considering applying for CNC status.

Keep in mind, for one thing, that if you have any delinquent tax returns you will have to file them now. You cannot be considered for CNC status unless you have filed those returns.

It is also good to be aware that when assessing whether you are experiencing financial hardship, the IRS doesn't only look at your income. The agency also looks at whether there are any assets you could sell to generate funds or whether you have the creditworthiness to get a loan.

Finally, the word "currently" in CNC status is there for a reason. You can expect the IRS to check back yearly to determine whether your financial situation has changed. If your income has gone up, the IRS may decide you are no longer eligible for CNC status.

The IRS does not, however, have an unlimited time to collect tax debt from your past. The general rule is that it can go back ten years, though there are certain exceptions.

An experienced tax attorney can guide you in making a sound decision on whether to seek CNC status or some other form of tax debt resolution.

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