What is Currently Not Collectible Status with the IRS?

What is Currently Not Collectible Status with the IRS?

If you owe back taxes to the IRS but can’t afford to pay them right now, you may be able to get your account put into “currently not collectible” status. This means the IRS will temporarily delay trying to collect the taxes you owe. It doesn’t make the debt go away, but it stops IRS collection efforts like wage garnishment or bank levies until your financial situation improves.

Lots of folks end up owing taxes they can’t pay – maybe you lost your job or had high medical bills. If that sounds like you, don’t panic! Read on to learn more about what currently not collectible status is, how to qualify, and what happens once you get this special status.

What is Currently Not Collectible Status?

Currently not collectible (CNC) status is when the IRS agrees not to try collecting back taxes because a taxpayer can’t pay. This happens when paying the tax debt would prevent the taxpayer from paying for basic living expenses like housing, food, clothing, and medical care.

CNC status temporarily protects taxpayers experiencing financial hardship from aggressive IRS collection tactics like wage garnishment or property seizure. It basically pauses IRS collection efforts and penalties until the taxpayer’s financial situation improves.

How Do You Qualify for Currently Not Collectible Status?

To get your tax account placed into CNC status, you’ll need to prove to the IRS that you can’t afford to pay your tax debt right now. The IRS will review your income, assets, and necessary living expenses to make this determination.

Here are some things the IRS will look at:

• Your income from wages, pensions, social security, etc.
• Assets like bank accounts, investments, and property you could use to pay the taxes
• Average monthly necessary living expenses like housing, utilities, food, medical care, and transportation
• Your ability to pay the tax debt through an installment agreement

The IRS may ask you to fill out a Form 433-F Collection Information Statement to provide details on your financial situation. You’ll need to document your income and expenses, often by providing pay stubs, bank statements, rent receipts, utility bills, etc.

How Do You Request Currently Not Collectible Status?

To request CNC status from the IRS, you can call or write to the IRS to explain your financial hardship situation. It’s usually faster to call so you can get an immediate preliminary decision after submitting your financial information.

Have your Form 433-F and supporting documents ready when you call. The IRS will review them and let you know if they agree you qualify for currently not collectible status based on your financial hardship.

If the IRS doesn’t agree you qualify, you can request a conference with the IRS Collection Manager to present your case. Or, consider hiring a tax professional to represent you and negotiate CNC status on your behalf.

What Happens Once You Get CNC Status?

Once the IRS agrees your account can be placed into currently not collectible status, here’s what happens:

• The IRS stops all collection action like wage garnishment and bank levies
• You receive an annual statement showing your balance due – but this is not a bill
• The 10-year statute of limitations on collections continues to run
• The IRS can take any refunds you’re due and apply them to your tax debt
• The IRS may file a federal tax lien on your account if you owe $10,000 or more

It’s important to understand that CNC status doesn’t make the tax debt go away. You still owe the money, and the IRS can review your account each year to see if your financial situation has improved to the point where you can start making payments.

How Long Does CNC Status Last?

There’s no set time limit for how long your account can remain in currently not collectible status. The IRS typically reviews accounts annually to determine if the taxpayer can start making payments on the tax debt.

As long as you remain in financial hardship, the IRS will likely continue renewing your CNC status each year. And after 10 years, the statute of limitations generally expires and the IRS can no longer collect on the old tax debt.

When Would CNC Status End?

Here are some reasons the IRS might remove your account from currently not collectible status:

• Your income increases significantly
• You inherit money or other assets that could pay the tax debt
• You start working again after a period of unemployment
• Your necessary living expenses decrease substantially

The IRS will look at your tax return each year or review other income information from Forms W-2, 1099, etc. If your income exceeds allowable living expenses, the IRS may end CNC status and request payment.

The Pros and Cons of CNC Status

Like most tax resolutions, currently not collectible status has advantages and disadvantages to weigh.

Pros of CNC Status

• Stops IRS collection action like wage/bank levies
• Prevents seizure of assets like your home or car
• Statute of limitations keeps running, potentially expiring the tax debt
• Gives you time to improve your financial situation
• Annual reviews ensure CNC continues only while you remain in hardship

Cons of CNC Status

• Tax debt isn’t forgiven – you still owe the balance due
• IRS can take any refunds you’re due and apply to tax debt
• IRS may file a tax lien on your account
• Interest and penalties continue growing, increasing balance due
• CNC status could end if financial situation improves

Alternatives to Currently Not Collectible Status

If you don’t qualify for CNC status or want a more permanent tax resolution, here are some other options to consider:

IRS Installment Agreement

An installment agreement allows you to pay your tax debt in smaller, more manageable payments over time. The IRS will negotiate a monthly payment amount you can afford.

IRS Offer in Compromise

An offer in compromise allows you to settle your tax debt for less than the full amount owed. You must show there’s doubt you could ever fully pay the debt.

Non-Collectible Status – Not Hardship

For some taxpayers, the IRS offers non-collectible status without a hardship finding. This may occur if the IRS can’t locate you or determines the debt isn’t worth pursuing.

Should You Seek CNC Status for IRS Tax Debt?

If you’re struggling with a tax bill you can’t afford, currently not collectible status may be your best option. It pauses IRS collection efforts and penalties, allowing time for your financial situation to improve.

Just remember – CNC status is temporary and your unpaid taxes continue growing with interest and penalties each year. It’s wise to consult a tax professional to understand all your resolution options, like settling for less through an IRS offer in compromise.

Don’t wait for the threatening IRS letters to start arriving in your mailbox. Be proactive and take control of your tax debt today. We can help you navigate this process and finally put your IRS problems behind you!