IRS CNC PROGRAM
What Is It? IRS CNC Program Basics
The CNC program is an agreement between the taxpayer and the IRS to suspend collection of a tax liability. It’s a specific back tax solution that allows you to delay making payments toward the debt. You agree to maintain current tax compliance and the IRS agrees to allow you some time, without making payments toward the back taxes, to get your finances in order. But as you can imagine, it isn’t a simple handshake deal and it doesn’t work for everyone.
You must prove to the IRS that you can maintain current tax compliance (making current tax payments and filing all required tax returns timely) and also prove that you or your business don’t have the ability to make any payment toward the liability. That means you have no equity in assets that can be liquidated and applied toward the back taxes, and that you don’t have the ability to make a monthly payment of $25+/month.
This is typically easier for an individual to accomplish than it is for a business.
Will Currently Not Collectible Status Work for My Business?
Currently Not Collectible, also known as CNC status, Uncollectible, Hardship status and sometimes Status 53, may work as a way to resolve your business’s past due payroll taxes. Although it can be tricky, it’s definitely possible. The difficult part is making current Federal tax deposits on time and proving to the IRS that your business doesn’t have the ability to make a payment of at least $25/month. Expect the IRS to go over your 433-B, Collection Information Statement with a fine toothed comb, making sure that all your expenses are necessary.
Can your business stop paying an unsecured creditor and make that payment toward the back taxes? Are there any loans that will be paid off soon? Is the business seasonal? Are all business assets necessary? These are a few of the questions you will face.
Before CNC status is even considered, the Service will want to make sure any available equity in assets is addressed. That is, can you sell anything you don’t need to pay the tax? Or, can you get a loan on any assets to help pay down the tax?
How Do I Qualify for Uncollectible Status for 941 Payroll Tax and the IRS Trust Fund?
First things first, you need to gain current tax compliance. All required tax returns filed must be filed, current taxes must be paid timely and current tax returns must be filed on time with full payment. You won’t get very far without compliance.
941 Payroll Tax – You will need to complete Collection Information Statement (CIS) forms 433-B (Business) and 433-A (Individual). The business needs to prove it can’t afford to pay monthly, but can maintain current tax compliance. The business owner(s) need to prove that they aren’t draining the business of its funds. The CIS forms help to accomplish this.
Some people get scared or offended in some way when the IRS asks for these forms and all of the attachments that go with them. (There are lots of attachments! – bank statements, loan statements, pay stubs, P&L statements…) But the IRS asks this from every business and business owner that owes back payroll tax. It’s the procedure. And, it's how you get what you want - CNC status, Installment Agreement...
Trust Fund Recovery Penalty / 6672 Civil Penalty – In certain cases, the IRS may place both the business 941 tax liabilities and the resulting personal Trust Fund assessment in CNC status. Once the Trust Fund is assessed to you personally, form 433-F or 433-A will need to be completed depending on how much is owed. And if you owe 1040 income tax, it will need to be included in the same resolution as the Trust Fund, whether that’s CNC status, an Installment Agreement or an Offer in Compromise.
I found it was extremely helpful having M&M Financial on my side while resolving issues with the IRS. Their guidance and familiarity with IRS protocol made all the difference!"
Small Business Owner
Offer in Compromise, Partial Payment Installment Agreement and CNC Program?
What’s the difference?
CNC Program – The taxpayer agrees to maintain current tax compliance moving forward and the IRS agrees to forego collection actions until the taxpayer's financial circumstances improve. The IRS allows the debt to sit there for a while without any payments being made toward it.
Offer in Compromise (OIC) – The IRS agrees to accept less than the total balance due as payment in full. Of course there are a ton of rules that apply.
Partial Payment Installment Agreement (PPIA) – The IRS agrees to a monthly payment plan that will not full pay the total balance due by the last day the government is allow to collect the tax (the CSED). The IRS reviews the taxpayer’s financial condition every two years to see if it has changed and to determine if the PPIA is still the appropriate resolution for the case.
Consider the IRS Collection Statute Expiration Date – CSED
The IRS has 10 years to collect a back tax liability. The countdown begins when the back tax is assessed. So for example, if you timely file 2015 1040 Income tax return with a balance due, the tax liability won’t be assessed until 2016 which means the IRS can collect until 2026. The last day the IRS is allowed to collect the tax is called the Collection Statute Expiration Date or CSED.
Why is the CSED important when determining best course of action to resolve your back taxes? It may help you determine whether one of the three solutions above will work for you. And, it is something that the IRS will strongly consider, if it's close.
CNC status is typically a good place to be. You don’t have to make payments toward the back taxes while the last day the IRS can collect gets closer and closer. Win – Win. So if you’re in CNC status, you probably want to stay there until the IRS takes you out of it. Even though a “pennies on the dollar” promise or “settle for 10% of what you owe” ad on the radio may sound great, if your CNC status takes you all the way through the CSED, you win.
Of course this isn’t all there is to consider when dealing with a back tax debt. But, hopefully it teaches you a little bit about the CNC program and its possibilities.
If you’d like more information to help determine whether the CNC program will work for you, contact us. We’ll set up a time to discuss your situation based on your schedule.