If you are experiencing extreme financial difficulties, you may be eligible for currently not collectible “CNC” status. Our advisors review your specific circumstances to advise whether CNC status is a solution to your tax problems.
There are two primary statutes of limitations that are important to understand in tax matters. The first, found in IRC section 6501(a), provides that the IRS has three years from the date a tax payer filed a tax return to assess an additional tax. This limit is extended to six years where the taxpayer has omitted more than 25% of gross income [see IRC section 6501(e)(1)(A)]. Also, this statute of limitations does not apply where the taxpayer has filed a fraudulent return [see IRC sections 6501(c)(1), 6501(c)(2), and 6501(c)(3)].
While the assessment statute is important to understand the potential exposure for additional tax liability, the collections statue of limitations is what is important to the resolution of most tax debts. IRC section 6502(a)(1) establishes a statute of limitation collection period of 10 years. The clock starts ticking on the date of the assessment, most often in our age of electronic filing, the day a return is filed. If a taxpayer has been subject to audit and examination, the assessment date will be the date the examination concludes. See IRC section 6203 and Treasury Regulations section 301.6203-1.
The statute of limitation for collection is suspended while an offer in compromise is considered by the IRS, and if approved, during the payment period. see Form 656. As a result, taxpayers who might be eligible for relief under either the CNC or the Offer in Compromise programs should carefully weigh the advantages and disadvantages of both before deciding which program to pursue. An application for innocent spouse relief will also toll the collections statute of limitations. See Form 8857.
The IRS’s collections statute of limitations is not extended by the filing of a tax lien. See Treasury Regulations section 301.6325-1.
While there are significant benefits to currently not collectible status, it is important to realize that CNC status is not permanent and the service may, and often does, ask you to update your financial information every few years in order to verify that you are still undergoing financial hardship.
From offices in Smithfield, Rhode Island and Brockton, Massachusetts, our Tax Lawyer Matthew Fabisch and his network of CPAs, enrolled agents, and related tax professionals advise and represent clients in communities throughout Rhode Island and Massachusetts. Call our office at 401-324-9344 or contact our office by e-mail to arrange an initial consultation with an experienced tax attorney today.