Uncollectible even though not in Compliance?

[Brian Barto]

I read in the Accountant Guide for Collections that CNC is still an option even if taxpayer is not in Compliance. I think I have a slam dunk CNC case. TP is low income; family of 3. Income about $30k. (According to IRS Wage and Income Transcripts). Net pay alot less because one spouse has $400/mo levy (wage garnishment- W2 employee). To get in compliance she needs to file 2014, 2015 and 2019. Only one spouse owes from before they were married for 2007-2011 (additional tax was assessed in 2013; so CSED on all years is 2023).

1. If I request CNC, will the IRS give her a deadline to file the 2014, 2015, 2019 as a condition of the CNC status?

2. I suspect there might be some unreported cash income. Mortgage in the name of other spouse who only has $2500 of W2 income – nothing else on transcript for 2019 (just the W2 and 1098).
Mortgage interest paid in 2019 of $10,000+ makes me wonder how they are paying that. Might there be some questions when I submit the 433?

3. use 433-A or 433-F?

Thanks

[David Ramirez]

An account can be put into CNC if hardship is established even if missing return are needed.
Some times just easier to file the return, but not required. They can usually be faxed into ACS.
See INternal Revenue Manual

IRM
5.16.1.2.9 (09-18-2018)
Hardship

Open Del Ret modules may be resolved by closing as little or no tax due, or income below filing requirement (P-5-133), if warranted by the facts of the case. See IRM 5.1.11, Delinquent Return Investigations, for options to resolve delinquent return accounts. If the taxpayer is required to file and refuses, a referral or summons may be appropriate. See IRM 25.5, Summons Handbook for summons procedures.
Caution:
If a hardship determination is verified, a levy cannot be issued or left in place to persuade a taxpayer to file.

Note:
Accounts may be reported CNC hardship if a CIS can be verified, even if there are unfiled returns. If the unfiled return is needed to confirm the hardship determination (i.e., income, expenses and/or assets reported on the CIS), the Bal Dues should be held until the return is secured and the CIS can be verified, but levies cannot be issued to collect the Bal Dues if all other income/asset checks appear to confirm hardship.

Ask how they have paid the mortgage, don’t just wonder. Maybe, borrow from family, parents or children.

[Eric Green]

Brian, yes someone can be placed in CNC if they are experiencing hardship (as defined as being CNC). See Vinatieri vs Commissioner, 133 T.C. No. 16, 2009. The case says exactly that.

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