Currently Non-collectible

Many taxpayers are unable to pay IRS anything at all on their tax balances.

However, merely telling IRS you are unable to pay anything right now isn't enough. You must meet IRS definition of "unable to pay".

How? IRS requires that you disclose all of your income sources to them as well as all of your monthly expenses. IRS telephone representatives are trained to ask a series of pointed questions designed to discover specific amounts of monthly income and expenses.

Once the IRS rep has recorded a taxpayer's Financial Information, some of the taxpayer's expenses are subjected to maximum limits based on national or regional averages; some of the taxpayer's expenses are totally rejected or disallowed since they are not considered "ordinary and necessary living expenses"; and some of the taxpayer's expenses are totally allowed.

Let us stress a point here. Your idea or definition of "ordinary and necessary living expenses" is probably radically different than the IRS definition of the term. So guess who's definition of "ordinary and necessary living expenses" will be used in this calculation? "Not the taxpayer's" is a good answer.

If your Monthly Allowable Expenses are greater than your Monthly Gross Income, then you have Negative Monthly Cash Flow.

If you have Negative Monthly Cash Flow, then IRS will not require you to make any kind of payment on your old taxes. They will consider you a "hardship" case.

You will still owe the taxes and the penalties and the interest. It's just that IRS can't force you to make any kind of payment(s) to pay off any part of those unpaid taxes as long as you they have you classified as Currently Non Collectible (CNC).

How long can you stay classified as CNC? We're glad you asked! You can stay classified as CNC indefinitely, really. IRS will monitor your income based on your W-2s and other income that is reported to them every year. If the IRS computer sees that your income has increased from one year to the next (say about 15% to 20%), then they will want to reevaluate your Financial Information to see if you can make payments.

There are also a few rules and requirements you must meet in order to stay CNC with IRS. Your failure to meet just one of these requirements will result in the default of your CNC status and IRS will begin to levy you again:

You must file all of your future tax returns on time (extensions will be allowed) and cannot be late.
If you owe any tax on any future income tax return, you must pay it in full.
If IRS notifies you that they want to reevaluate your financial condition, you must respond to their request by their deadline date.

Your failure to meet any of these requirements will result in the default of your CNC status.

The default of your CNC status will result in your tax case being reassigned to the Collection Division of IRS for action.

Your reassignment to Collection will result in levy action on your wages, bank account, retirement account, Social Security payments, and any other source of cash that IRS can find.

IRS Negotiation: Trick Of the Trade

The most important part of negotiating with IRS in any kind of Collection situation is to know how they make their calculations that determine your ability to make payments on your tax liability and how much that payment will be.

Not knowing how to make these calculations will cost you a lot of money each month that will add up to be a lot more money over the years.

We know the exact calculations IRS makes to determine whether or not you can make a monthly payment to them and how much that payment should be.

In fact, we make these calculations before we even talk to IRS about your financial situation.

This way, we already know what the outcome of our discussions with IRS should be.

We use this information to your advantage to keep you payments to IRS as low as possible, and often to even get you classified CNC so that you will not be expected to make any payments at all for a potentially long time.