For those of you who play chess, you know that strategy is the key to winning the game. Tax debt can be handled in the same manner. You make strategic moves from the moment a client comes to you with a tax debt concern to ultimately move their case to a final resolution. Currently Not-Collectible is one strategy you can employ. However, it is essential to know when it will assist with the ultimate resolution of a tax debt and, on the other hand, when it will harm the taxpayer.

When taxpayers prove that they don’t have the financial resources to address a past-due tax balance, the IRS and most states will place the account in a Currently Not-Collectible (CNC) status. While CNC status lets the taxpayer have some breathing room free of the threat of collection actions such as bank account levies or wage garnishments, this status carries some pros and cons. Here are a few things to keep in mind:

• It is not a permanent status. Depending on the tax agency, the CNC status can be six months to two years.
• Full financial disclosure is typically required before the IRS or state will agree to a CNC status.
• No payments need to be made towards the past-due taxes owed while in CNC status.
• Penalties and interest continue to accrue on the total balance owed.
• Any tax refunds realized while in this status will be confiscated and applied toward the balance owed.
• Depending on the size of the total balance owed, the IRS or state may file tax liens to protect the future right to collect on the debt.
• Not all states have an official Currently Not-Collectible program.

Weighing these considerations is critical when determining whether to employ a CNC tactic on a client’s account. Let me share a situation when we chose to utilize it and why...

A bookkeeper referred a client to us who operates a single-member LLC cleaning business. The business grew from a one-woman shop to having six employees and an office manager within two years. Our client depended on the office manager to oversee all administrative tasks, including processing payroll and managing the QuickBooks payroll tax reporting functions. The client had not filed her personal income tax returns since she started the business because she was overwhelmed by the aggressive growth and all the time and mental dedication it took to stay on track. She intended to get caught up with her annual filings once everything calmed down and she could get her records in order.

By June 2020, while the owner was still behind with her annual taxes, most of the business’ customers canceled their services for fear of the Covid virus being brought into their households by the cleaners. The business owner made the tough decision to let go of most of her staff, including the office manager. This placed the owner under more stress because of her involvement with maintaining the few loyal clients that stayed through Covid and focusing on growing the business once again.

In the fall of 2022, the business owner began receiving notices from the IRS claiming unfiled payroll tax returns were due. Upon looking into the records, she found that the office manager never filed the quarterly or annual payroll returns. Shortly after, she hired a local bookkeeper to clean up the records and address the unfiled payroll tax returns. Once the returns were compiled and the correct tax balance was known, the bookkeeper referred the client to us in the summer of 2023 to identify and negotiate a solution.

At the time we filed our power of attorney, the total payroll-related taxes owed to the IRS was $164,000, a revenue officer had been assigned to the case, the trust fund assessment had already been proposed against the business owner, and the revenue officer was threatening to levy the bank accounts. When we secured copies of the business's financial records from the bookkeeper, we could see that the company was just able to cover its ongoing expenses and current taxes, but nothing further. Because of the trust fund aspect of the debt, we also compiled a financial statement for the owner, during which we realized she didn’t have any options to address the taxes owed from a personal standpoint either. However, there was a golden ring coming that the client was excited about: she had received news that her company was being awarded a contract to provide move-in/move-out cleaning services for a property management company that held 4800 apartments between 10 properties set to start in three months.

The revenue officer assigned to the case was extremely aggressive. If we did not submit a resolution proposal within the first 30 days of our involvement, she would issue levies. After meeting with the client and the bookkeeper about the financials, the upcoming contract the business was being awarded, and the various resolution options we could qualify them for, we proposed a Currently Not-Collectible status on the business and personal accounts. By doing so, we could provide protection on both sides as the new contract was finalized and the business stabilized following the new expenses incurred related to the contract. Four months after the contract was awarded, we contacted the IRS and negotiated an installment agreement to full-pay the balance owed over a 42-month timeframe. To date, the personal account is still in the Currently Not-Collectible status.

When working with a new client, the team at Golden Lion Tax Solutions always considers every option available before settling on one resolution strategy over another. In this case, buying some time for the business made sense as the upcoming contract would significantly change its financial condition. Given the facts of the case, it was reasonable to employ this strategy.

If you or your client has a tax debt issue, please don’t wait to address it! The IRS and states are becoming more aggressive than they have been in the last few years. If you aren’t sure what to do, contact the Golden Lion Tax Solutions team. With almost 25 years of experience, we have the first-hand knowledge to identify the best options available and the muscle to relentlessly pursue the solution we set our sights on!

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Your future and your family deserve the right protection. Golden Lion Tax Solutions will be your advisor and confidant throughout the entire journey. We guarantee to offer you or your business best-case solutions for your tax debt. We are by your side every step of the way. Start now and get your life back.

For help with your tax debts, email contactus@goldenliontaxsolutions.com or call 833-LION-TAX (833-546-6829)

Disclaimer: There are requirements that must be satisfied in order to qualify for some of the tax solutions we discuss on our website. Not all of our services will be suitable for every client. Golden Lion Tax Solutions is here to help you find the most appropriate solution to fit your situation.