CTRS Currently Not Collectible Status and Financial Hardship 2 — Questions and Answers
Question 1: What event most commonly triggers the IRS to remove a taxpayer from Currently Not Collectible status and resume active collection?
- The taxpayer files a new tax return showing a refund due
- The IRS's systemic income review shows the taxpayer's income has increased significantly (Correct answer)
- A new Revenue Officer is assigned to the account
- The taxpayer hires a new tax professional
Correct answer: The IRS's systemic income review shows the taxpayer's income has increased significantly
The IRS periodically reviews CNC accounts and compares the taxpayer's income from filed returns; a significant increase in income that creates collection potential triggers removal from CNC status.
Question 2: Can the IRS file a Notice of Federal Tax Lien (NFTL) against a taxpayer while their account is in Currently Not Collectible status?
- No, CNC status legally prohibits filing of any tax liens
- Yes, the IRS may still file an NFTL to protect the government's interest even while collection is suspended (Correct answer)
- Only if the balance exceeds $100,000
- Only after the taxpayer has been in CNC status for more than two years
Correct answer: Yes, the IRS may still file an NFTL to protect the government's interest even while collection is suspended
CNC status suspends active collection enforcement but does not prevent the IRS from filing an NFTL to protect the government's priority interest against future assets or third-party claims.
Question 3: Which IRS Collection Information Statement is used for businesses requesting Currently Not Collectible status?
- Form 433-A
- Form 433-B (Correct answer)
- Form 433-D
- Form 433-F
Correct answer: Form 433-B
Form 433-B (Collection Information Statement for Businesses) is used when a business entity is requesting CNC status or other collection alternatives.
Question 4: What is the streamlined CNC threshold that allows the IRS to place accounts in CNC status without a full financial analysis for balances below a certain amount?
- $5,000
- $10,000 (Correct answer)
- $25,000
- $50,000
Correct answer: $10,000
The IRS may grant CNC status through streamlined procedures for individual taxpayers with balances under $10,000 who meet basic income-to-expense thresholds without requiring a complete Form 433-A.
Question 5: What is the IRS's typical review cycle for accounts classified as Currently Not Collectible?
- Every 6 months via a mandatory Revenue Officer visit
- Annually when the taxpayer files their tax return, allowing income comparison (Correct answer)
- Every 3 years through a formal Collection Due Process hearing
- Only when the taxpayer contacts the IRS to request a status update
Correct answer: Annually when the taxpayer files their tax return, allowing income comparison
The IRS systemically reviews CNC accounts each year by comparing the taxpayer's newly filed tax return income to the income level that qualified them for CNC, and will resume collection if income has materially increased.
Question 6: If a taxpayer in Currently Not Collectible status fails to file required future tax returns, what is the most likely consequence?
- The IRS will automatically extend the CNC period with no penalty
- The IRS may remove the account from CNC status and resume enforced collection (Correct answer)
- The IRS will file a substitute for return but maintain the CNC designation
- The taxpayer's CNC status converts to an installment agreement automatically
Correct answer: The IRS may remove the account from CNC status and resume enforced collection
Continued tax compliance, including filing all required returns, is a condition of maintaining CNC status; failure to file can result in the IRS reinstating enforced collection action.
Question 7: Which of the following situations would most likely disqualify a taxpayer from Currently Not Collectible status?
- The taxpayer owns a home with significant equity but has no liquid assets (Correct answer)
- The taxpayer's monthly expenses equal their monthly income
- The taxpayer has an outstanding balance of $85,000 from multiple tax years
- The taxpayer recently retired and is living solely on Social Security
Correct answer: The taxpayer owns a home with significant equity but has no liquid assets
If a taxpayer has significant equity in assets such as real estate, the IRS may determine the taxpayer has the ability to borrow against or liquidate the asset to pay the tax debt, disqualifying them from CNC status.
CTRS Currently Not Collectible Status and Financial Hardship 2
What event most commonly triggers the IRS to remove a taxpayer from Currently Not Collectible status and resume active collection?