For example, if you were able to prove $39,000 a year in basic living expenses as allowed by IRS standards, do not have enough income to pay to your expenses, and no assets to pay the taxes owed, the IRS would put you in CNC with closing code “27.” TPI would have to be above $44,000 meaning you would no longer qualify for CNC until your TPI is above $44,000. At that time, the IRS may kick you out of CNC status.
New balance owed and continuing CNC status
What if you are in CNC status and you file a tax return with a balance owed? The IRS may either remove you from CNC or roll the balance owed into CNC. IRS procedures allow taxpayers to stay in CNC if they have arranged for CNC in the last 12 months. However, if the new balance due significantly increases the amount owed, the IRS may inquire as to whether you still qualify for CNC. In practice, many taxpayers remind the IRS of a CNC determination made in the past 12 months to allow the current year to be wrapped into the CNC determination. Taxpayers who have obvious sources of new reportable income and assets should expect to be exited from CNC as the IRS usually reviews the new balance due tax return as well as new Forms W-2 and 1099 issued to the taxpayer.
Watch next year’s income
If you are currently in CNC status, when will the IRS ask you to pay again? Likely when your income exceeds the reported expenses that you used to get into CNC. CNC may last forever if your financial situation does not improve. At the end of the IRS collection statute of limitations, the IRS will write off the balance owed.
Remember, the IRS does not always remove you from CNC if your TPI is greater than the closing code amount. The second filter the IRS uses is their resources. If they do not have the resources to collect, they may leave you in CNC for another year. How do you know? You must ask the IRS as to your status.
Do you have additional questions?
For assistance creating a strategy to address your tax issue, visit Jackson Hewitt’s Tax Resolution Hub to see the various ways we can help you.