Currently Not Collectible Status and Financial Hardship Flashcards

What does 'Currently Not Collectible' (CNC) status mean for a taxpayer with an outstanding IRS debt?

Answer: The IRS temporarily suspends active collection actions because the taxpayer cannot pay without suffering financial hardship

CNC status means the IRS acknowledges the taxpayer cannot pay without undue hardship and temporarily suspends enforced collection, though the debt remains and interest continues to accrue.

Which IRS Collection Information Statement is used for wage earners and self-employed individuals when requesting Currently Not Collectible status?

Answer: Form 433-A

Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals) documents the taxpayer's assets, liabilities, income, and expenses needed to evaluate CNC eligibility.

What happens to the 10-year Collection Statute Expiration Date (CSED) while a taxpayer is in Currently Not Collectible status?

Answer: The CSED continues to run normally during CNC status

Unlike some other collection alternatives, CNC status does not toll or extend the CSED; the 10-year collection statute continues to run, which can benefit the taxpayer.

What is the primary IRS standard used to evaluate allowable living expenses when determining a taxpayer's eligibility for Currently Not Collectible status?

Answer: The National and Local Financial Standards published by the IRS

The IRS uses National and Local Financial Standards (Collection Financial Standards) to determine reasonable allowable expenses; amounts exceeding these standards generally require documentation to be accepted.

Which of the following best describes what occurs to tax refunds while a taxpayer is in Currently Not Collectible status?

Answer: Refunds are applied to the outstanding tax debt through the Treasury Offset Program

Even during CNC status, the IRS will intercept any tax refunds through the Treasury Offset Program and apply them to the outstanding tax liability.

A taxpayer's gross monthly income is $2,800 and their IRS-allowed monthly expenses total $3,100. Which collection resolution option does this scenario most directly support?

Answer: Currently Not Collectible status

When a taxpayer's allowable expenses exceed their income, resulting in negative or zero monthly disposable income, CNC status is the most appropriate resolution because there is nothing left to pay.

Under which Internal Revenue Code section does the IRS derive authority to suspend collection actions based on a taxpayer's financial hardship?

Answer: IRC Section 6343

IRC Section 6343 authorizes the IRS to release levies and suspend collection when collection would create economic hardship for the taxpayer.