If you do not have the financial capability to pay any amount of back taxes, then Currently Not Collectible (CNC) is an option to consider. Under this IRS status, the IRS postpones tax debt payment until the taxpayer is able to pay it partially or fully, depending on their financial condition in the future.
The IRS can collect a tax debt only until the statute of limitations on the debt expires. For tax debt collection, the statute of limitations is 10 years. There are exceptions in which the statute of limitation could extend beyond 10 years. The statute of limitations is paused under certain circumstances, and after these circumstances end, the statute of limitations resumes from where it left off. Circumstances in which the statute of limitations is put on hold include:
- When a taxpayer is under bankruptcy protection
- While the IRS is evaluating an Offer in Compromise, Innocent Spouse Relief, Installment Agreement, or Collection Due Process (CDP) hearing
- If the taxpayer lives outside the country for a minimum of six months during the period
The IRS considers the financial condition of the taxpayer in totality when evaluating an application for CNC. The evaluation process includes a review of the assets, liabilities, and any other source/method using which the applicant can pay the tax debt. It is only when the IRS cannot expect to collect any amount of repayment that they give the CNC status to a tax debt case.