In the food manufacturing and distribution industry, cash flow challenges are all too familiar.
Delayed payments from distributors, unexpected equipment breakdowns and seasonal demand shifts can create perfect storms that leave businesses struggling to meet all their obligations — including tax bills.
When you owe back taxes but can’t afford to pay them, you may qualify for a special tax status known as currently not collectible (CNC). In a nutshell, if the IRS agrees you can’t pay both your taxes and your reasonable business and living expenses, it may place your account in CNC status.
How to request CNC status
You can request CNC status by submitting the proper form along with your proof of income and documentation of business assets, inventory values and outstanding loans. For food businesses, be prepared to provide:
- Cash flow projections
- Recent profit and loss statements
- Equipment lease or loan reports
- Facility costs and cold storage expenses
- Outstanding invoices
- Current payables to suppliers and distributors
If the IRS determines that your necessary business and living expenses exceed your available income, you will be notified of your CNC status. Once approved, the IRS must cease its collection efforts and cannot garnish wages or seize business property. After a year or two, the IRS will review your financial situation. If your cash flow has improved, you’ll be required to begin paying your back taxes.
Keep in mind, CNC status only applies to back taxes. You must still file tax returns and pay current and future taxes.
The statute of limitations window
The IRS can attempt to collect outstanding taxes for only 10 years from the date the taxes were assessed against you, which is usually the date you filed. If at the end of this 10-year period the IRS hasn’t collected, the taxes are no longer owed.
Industry expertise you can trust
Cash flow challenges are a reality in food manufacturing and distribution, but you don’t have to navigate tax debt alone. Reach out to our firm for smart tax strategies to help navigate unpredictability.
This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance specific to your unique circumstances.