Are You Currently Not Collectible?

Although you should plan on resolving any delinquent tax bill, you may not necessarily have to pay the entire amount at once. In fact, you may not be required to pay anything, depending on your circumstances. There are several items to consider when you receive notice of an IRS debt, beginning with what your letter actually means.

Notice of Assessment

In the event that you pay too little or simply fail to pay a tax liability, the IRS will calculate the amount due and send you a Notice of Assessment. This can occur if you miss the tax payment deadline or miscalculated the total amount you owe. Regardless of your circumstances, there are a couple of key details to pay close attention to:

• The total assessed tax debt (including penalties and interest)
• The tax year for which the debt was assessed
• The due date for you to respond

By examining the tax year in question, you may check the IRS’s assessment against your own tax records. This is an important step, as the IRS may have miscalculated what is due. Once you have confirmed that the assessed debt amount is accurate, you will want to note that your unpaid balance is only part of the total due.

Penalties and Interest

Any tax liability which is not paid on time may be subject to both penalties and interest, which accrue monthly. If, for instance, the original due date for payment was on April 15th, 2014, you will be liable for penalties and interest that have amassed since that date. Additionally, these charges will continue to accrue until the balance is paid in full, regardless of whether you have a formal resolution in place (more on this in a moment).

What is Expected?

Since any unpaid balance after the initial due date constitutes a tax debt, the IRS expects you to pay the full amount within thirty to ninety days of assessment. You may, however, be eligible to pay the tax debt in monthly allotments. This is known as an installment agreement.

This arrangement enables you to satisfy your balance over several months or years. Ideally, you will pay the full amount due at once, in order to avoid future penalties and interest. For many people, however, this may not be financially feasible.

Currently Not Collectible Status

In the event that you cannot afford even a monthly payment, you may be placed in a Currently Not Collectible (CNC) status. This designation is assigned to taxpayers who are unable to resolve their tax debt without incurring an undue financial burden. If you obtain CNC status, you will not be subject to IRS collection activity until your financial situation improves.

You may request CNC status with the IRS directly or may wish to first consult a licensed tax professional. A tax professional can review the specifics of your situation and, if necessary, negotiate with the IRS on your behalf.