I had an interesting case recently that shows how misunderstood IRS collection rules can be, especially for Americans living abroad.

I had an interesting case recently that shows how misunderstood IRS collection rules can be, especially for Americans living abroad.

A family came to me after selling a foreign rental property with about $500,000 of capital gain, which created roughly $50,000 of US tax. 

Their income is modest, and they have many children. On paper it looked impossible for them to pay this bill.

Most people think there are only two choices:

1) Pay the tax

2) Go on a payment plan

In reality, there is a third option that many expats have never heard of:

Currently Not Collectible (CNC).

CNC is not a loophole and not forgiveness. It is simply the IRS recognizing that the taxpayer has no ability to pay under the IRS financial standards.

Large families living abroad often qualify more easily than people realize.

Housing, utilities, transportation, food and household expenses for a large family in Jerusalem can easily exceed $100,000 a year. 

This means that even with a decent income, disposable income can still be zero under IRS formulas.

In this case, the structure of the taxpayer’s assets made all the difference.

The family not only sold the foreign rental property, but they also sold about $170,000 of stock investments. All of those funds were then converted into a protected primary residence. 

Under IRS rules, a primary home is not a collectible asset, but investment property and stock portfolios are.

This shift was essential.

If even one of these assets had remained in investment form, CNC would have been denied automatically. 

When the assets were restructured correctly and the family’s actual expenses evaluated under IRS standards, CNC became a legitimate and appropriate resolution.

When approved, CNC:

• Stops IRS collection activity

 • Prevents enforced actions

 • Starts the 10 year CSED (Collection Statute Expiration Date) clock

 • And if the taxpayer’s situation does not improve, the debt eventually expires. (Note: This expiration of debt isn't so simple for taxpayers living abroad, that's for another day).

Many people think CNC is only for extreme hardship cases. That is not true. It is a normal IRS resolution for taxpayers who have no ability to pay, even when the debt came from something like a large real estate gain.

This case is a reminder that tax strategy matters.

Two families with the same income and the same tax bill can end up in completely different situations depending on how well the rules are understood and applied.

If you are an expat dealing with foreign real estate, IRS collections or complex asset questions, the right structure and timing can make all the difference.