The Internal Revenue Service (IRS) offers various options for taxpayers who are unable to pay their taxes due to financial hardships. Two common solutions provided by the IRS are payment deferral and Currently Not Collectible (CNC) status. These options offer temporary relief to individuals facing economic challenges. However, it’s crucial for taxpayers to understand when these arrangements come to an end and what steps they need to take afterward.
What is Payment Deferral and Currently Not Collectible Status?
Payment deferral allows taxpayers to postpone their tax payments temporarily. This option is suitable for individuals who are facing financial difficulties but expect to be able to pay their taxes in the future. On the other hand, Currently Not Collectible status is granted to taxpayers who are experiencing significant financial hardship and cannot afford to pay their taxes at the present time. Under CNC status, the IRS temporarily halts its collection activities.
When Does Payment Deferral End?
Payment deferral typically ends when the agreed-upon period expires. This period can vary depending on the agreement reached between the taxpayer and the IRS. In some cases, taxpayers may opt for a short-term deferral, usually lasting up to 120 days. Alternatively, they may negotiate a longer-term deferral, which could extend up to several years. Regardless of the duration, taxpayers need to fulfill their payment obligations by the end of the deferral period.
If taxpayers fail to pay their taxes by the agreed-upon deadline, they may face penalties and interest charges. Therefore, it’s essential for individuals benefiting from payment deferral to make arrangements to settle their tax liabilities before the deferral period expires. Failure to do so can result in additional financial burdens and complications with the IRS.
When Does Currently Not Collectible Status End?
Currently Not Collectible status remains in effect until the taxpayer’s financial situation improves, allowing them to meet their tax obligations. The IRS periodically reviews the financial circumstances of taxpayers with CNC status to assess whether they have the ability to pay their taxes. If the IRS determines that the taxpayer’s financial situation has improved, they may revoke the CNC status and resume collection activities.
Several factors can lead to the end of Currently Not Collectible status:
- Improved Financial Situation: If the taxpayer’s income increases or their assets change significantly, the IRS may conclude that they can afford to pay their taxes. In such cases, the CNC status will end, and the IRS will resume collection efforts.
- Failure to Provide Updated Information: Taxpayers with CNC status are required to provide updated financial information to the IRS upon request. Failure to comply with these requests can result in the termination of CNC status.
- Expiration of Statute of Limitations: In some cases, the IRS may be unable to collect taxes due to the expiration of the statute of limitations. Once this period expires, the IRS cannot pursue collection activities, and the CNC status effectively ends.
- Tax Debt is Paid Off: If taxpayers pay off their tax debt while under Currently Not Collectible status, the arrangement naturally comes to an end.
What Happens After Payment Deferral or Currently Not Collectible Status Ends?
After payment deferral or Currently Not Collectible status ends, taxpayers are required to resume their tax payment obligations. Depending on their financial situation, individuals may be eligible for alternative payment arrangements, such as installment agreements or offers in compromise.
Installment Agreements: Taxpayers who are unable to pay their taxes in full may qualify for installment agreements, which allow them to pay off their tax debt in monthly installments over an extended period.
Offers in Compromise: In certain circumstances, taxpayers may be able to settle their tax debt for less than the full amount through an offer in compromise. This option is available to individuals who demonstrate that they cannot afford to pay their taxes in full and do not have sufficient assets to satisfy their tax liabilities.
It’s essential for taxpayers to communicate with the IRS and explore available options if they are unable to meet their tax obligations. Ignoring tax debts can lead to severe consequences, including wage garnishment, bank levies, and liens on property.
Conclusion
Payment deferral and Currently Not Collectible status offer temporary relief to taxpayers facing financial hardships. However, it’s crucial for individuals to understand when these arrangements come to an end and what steps they need to take afterward. By staying informed and proactively addressing their tax obligations, taxpayers can avoid penalties and navigate their financial challenges more effectively.
