CNC IRS Collection Alternative

[Tax Sleuth]

If a taxpayer is unemployed and has little or no savings, would their ownership of a rental property generally result in being unable to obtain a currently not collectible status in regards to back taxes owed to the U.S. Treasury or is this option still possible? What guidelines exist for this kind of situation?

[smithtax]

CNC Eligibility

Depends. Is there equity in the rental? Positive cash flow?

Since there is rental property, Form 433-A (as opposed to 433-F) will be necessary to negotiate a CNC and all sources of income AND equity must be reported.

Aside from any positive cash flow from the rental property, if there isn't any equity, or if TP cannot borrow against the property, CNC is still an option.

If there is equity and TP is able to borrow, ACS will expect payment up to the amount borrowed. It should be noted that the IRS will not force any loan financing that TP cannot afford. The 433 should bear that out. I would also have TP obtain 2-3 loan rejection letters to submit with the 433 to support that contention.

Review IRM 5.16.1 in depth if you are not totally familiar with the CNC process. Also look at IRM 5.15.1.7 and 5.15.1.8.

Additionally http://www.irs.gov/Businesses/Small-...nd-Other-Items

[Nashville]

Lien against Property

I have known the IRS to place a lien on the rental property. The lien is placed such that the unsatisfied amount continues to accrue interest. Don't know whether they are required to notify the owner or not.

Really sinister, too. I've known a lien to be on a property for as long as 10-12 years, and then when sold, IRS gets first crack at the proceeds. By now the owner has forgot about it and thought IRS was going to leave them alone. Horrified when they find out the money is coming out of their sale proceeds.

And any amount taken to satisfy the IRS is not added to the basis of the property either, so there is no deduction for it (and shouldn't be).

[smithtax]

I have known the IRS to place a lien on the rental property. The lien is placed such that the unsatisfied amount continues to accrue interest. Don't know whether they are required to notify the owner or not.

Really sinister, too. I've known a lien to be on a property for as long as 10-12 years, and then when sold, IRS gets first crack at the proceeds. By now the owner has forgot about it and thought IRS was going to leave them alone. Horrified when they find out the money is coming out of their sale proceeds.

And any amount taken to satisfy the IRS is not added to the basis of the property either, so there is no deduction for it (and shouldn't be).

I would tend to slightly disagree. Normally the IRS will not assign a lien if TP has entered into an SIA, GIA, or IBTF Express IA (IRM 5.12.2.4.1) and the CSED is 10 yrs (IRM 5.1.19.1).

However, I agree that you often have to 'remind' the IRS when the lien is no longer valid.