IRS Hardship – Currently Not Collectible
IRS Hardship is for financially struggling taxpayers who are unable to pay their back income tax debt. The real term used by the IRS is Currently Not Collectible (CNC) Status.
IRS Hardship – What Does it Mean for You?
What are the options for a taxpayer who owes the IRS for back Income taxes but is unable to pay? What are your options if the taxpayer is unable to pay the past due to income tax because you have just enough money to support yourself and your family? Once a taxpayer is declared by the IRS to be Currently not Collectible (IRS Hardship), the IRS will not take/seize your property. The IRS will not take your paycheck (IRS wage garnishment) or wipe out your bank account (IRS Bank Levy) while the taxpayer is in IRS Hardship (Currently not Collectible). IRS Hardship will not remove the back income taxes that owed by a taxpayer. The financially struggling taxpayer will still owe back income taxes. Every year the IRS will mail out a reminder letter regarding the income taxes owed.
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IRS Penalties and Interest
IRS Hardship does not stop IRS penalties and interest to accrue. The IRS will continue to charge penalties and interest and the IRS will file a Federal Tax Lien.
IRS Hardship Status – How Long Will it Last?
IRS Hardship (Currently not Collectible) status could last up to 10 years. Generally, the IRS has 10 years to collect overdue income taxes. After 10 years, the IRS is supposed to remove the back taxes. For example, if a taxpayer filed their 2009 tax return on time, back taxes for 2009 will be owed. The IRS can collect the back taxes until 2020. If the 2009 taxes are in IRS Hardship status, the IRS will leave the taxpayer alone. A taxpayer may be able to stay in IRS Hardship status for the next 10 years. After 2020, the IRS will remove 2009 taxes.
The IRS will review a taxpayer’s income situation approximately once every two years. If the taxpayer’s income has increased, the IRS may take the taxpayer out of IRS Hardship (Currently not Collectible) status. The IRS believes the delinquent taxpayer is better able to support themselves and pay the back income tax debt.
If A Taxpayer Has New IRS Back Income Taxes
What if a taxpayer expects to owe new taxes for this year? The back income taxes that are owed are in IRS Hardship status. Will the new taxes be automatically included in the IRS Hardship status? The answer is no. Every tax year is treated separately. For example, you could owe back taxes for 2005 – 2008, and new taxes for 2010. 2005 – 2008 are in IRS Hardship status but 2010 is not. The IRS can pursue the taxpayer for the new 2010 taxes but not 2005 – 2008 back taxes.
If you are in this situation, the tax professionals at Flat Fee Tax Service recommend that you pursue an IRS settlement (Offer in Compromise). This should not affect your IRS Hardship status. If the IRS has declared that you are unable to pay them for the income taxes that you owe, then it’s a very important step toward having your entire income tax debt settled.
If the struggling taxpayer is unable to pay off the new taxes, the taxpayer can request to put the new tax debt in IRS Hardship status. The taxpayer can continue to be Currently not Collectible but it would be so much better to have all of the income tax debt wiped out through the Offer in Compromise program.
IRS Hardship Tax Forms
The IRS will request financial information to show that the taxpayer is an IRS Hardship.
Difference Between IRS Hardship and IRS Settlement
An IRS settlement submitted through the Offer in Compromise program is a more complete solution compared to IRS Hardship. An IRS Settlement is an agreement between the IRS and the delinquent taxpayer to pay less than what is owed. The IRS Settlement process usually takes approximately 10 months but can take as little as 6 months and as much as 24 months. After the IRS settlement agreement is finalized, the delinquent taxpayer will be done. The taxpayer will no longer owe back income taxes.
There is a huge difference between being in IRS Hardship and proceeding with an Offer in Compromise settlement. During the Offer in Compromise process, the IRS must leave taxpayer alone. The IRS may or may not leave the taxpayer alone while in IRS Hardship status. Also, while in IRS Hardship, the delinquent taxpayer could be dealing with their past due to income taxes for the next 10 years. Most people are uncomfortable with this. A taxpayer should be uncomfortable with this. A taxpayer may not like the thought of owing back taxes even though the IRS is not coming after the money.
To Know More About the IRS Settlement Process Read This: IRS Settlement
IRS Hardship may be a better option if a taxpayer is not qualified for an IRS Settlement. But, know this, if the IRS has already declared that a taxpayer is unable to pay the overdue income taxes, it is only a “hop, skip and jump” to wiping out the income tax debt altogether.
The IRS income tax relief team at Flat Fee Tax Service will have a taxpayer placed into IRS Hardship / Currently not Collectible status if the taxpayer is unable to pay the back income tax debt and is not qualified for an Offer in Compromise settlement. The financially struggling taxpayer will still owe the back taxes but the IRS will not pursue the taxpayer. Our clients are able to take a deep breath and go about their normal everyday life. A taxpayer may stay in IRS Hardship status for the next 10 years. After 10 years, the IRS will remove the back taxes.
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