I have previously outlined the range of options when someone is dealing with vigorous collection activity by either the IRS or NYS (see the August, 2013 entry). At one end of the spectrum are those who have the financial ability to pay but they need more time to do so. For those taxpayers, a payment plan is really the right solution to work through. But what if full payment will never be feasible? For these taxpayers, two very real possibilities are the submission of an Offer in Compromise or having the case marked as “currently not collectible,” or “CNC.” This brings us to the question: When is it better to resolve a tax debt through an Offer and when is it better to have a case marked “CNC?”
Simply stated, having your case marked CNC is always the least expensive and most expeditious way to fend off the collection process. If the IRS (or NYS) is persuaded to reach this determination, no money must be paid for this result nor will any payments be expected to be made on the account. That will continue to be the case unless something happens to change that determination. This last clause is really the rub; CNC is not a complete resolution of the situation. As a practical matter, a CNC determination may turn out to be the final resolution but that finality only comes if the CNC determination remains in place until the collection statute of limitations (generally 10 years for the IRS and 20 years for NYS) expires.
In comparison, if an Offer is accepted now there is closure to the collection process, but with one important proviso: once an offer has been accepted the taxpayer must remain fully compliant with the filing and payment requirements for at least 5 years after the Offer is accepted or else the compromised debt will be reinstated.
So which is better, settlement through an Offer or having the matter marked as non-collectible? Five primary considerations factor into the question:
- The cost of getting CNC versus an accepted Offer. (Without question, the Offer process will be more expensive.)
- The time remaining on the collection statute of limitations. (If that time is short, then the CNC result is more attractive.)
- The likelihood of financial circumstances changing before the collection statute of limitation expires. (If positive changes are anticipated, the Offer will be more attractive.)
- The impact of having a Notice of Federal Tax Lien on record. (The tax lien filing will go away when an offer is accepted and remain if CNC is the result.)
- The need for closure/peace of mind. (While both bring peace of mind, usually the Offer is the more lasting solution.)
Both the Offer and the CNC determination are good outcomes. Which is better can be debated. Our knowledgeable tax professionals at Bousquet Holstein can help you evaluate the foregoing factors, and perhaps others, when making this important decision.