IRS Currently Not Collectible Status: What It Is And How It Works
No one ever wants to owe back taxes, but if you’re low income, having to repay the IRS could be catastrophic.
Do you pay your utility bill or your tax bill? Do you buy medicine or pay off the IRS?
While you’re legally obligated to repay the IRS for any back taxes, the agency does understand there are extenuating financial circumstances that can make people unable to pay. That’s where “Currently Not Collectible” status comes in.
In this guide, you’ll learn just what it means when your account is deemed “Currently Not Collectible,” how to apply for this status, and what that designation means for your financial situation.
What Does “Currently Not Collectible” Mean?
If you’ve seen any ads for professional tax debt relief services or have done any research about alleviating your tax debts, you may have run into the phrase “Currently Not Collectible,” or CNC.
CNC is a status designation the IRS can put on your account in times of financial hardship.
In most cases, CNC status applies to low-income taxpayers or those with significant financial responsibilities, such as those who suffer from a prolonged illness or who have been out of work.
With CNC status, you agree that you owe the IRS your tax debt, but paying that debt back - either in one lump sum or in installments - would put you in such dire financial straits that you couldn’t pay your living expenses.
If you are granted CNC status, your tax debt does not go away; instead, the IRS temporarily pauses any active attempts to collect your back tax debt.
Gaining “Currently Not Collectible” status will stop any levies, threatening letters, and collection enforcement on your account until you are in a better financial position.
And contrary to the splashy advertisements from some tax debt relief services, CNC status is not a “limited time” option. Application for CNC status is available to any taxpayer at any time during the year.
Who Is Eligible for “Currently Not Collectible” Status?
While “Currently Not Collectible” status is an option available to all taxpayers with outstanding debt to the IRS, not everyone qualifies for this designation.
In applying for CNC status, a taxpayer must show the IRS that they have a severe economic hardship or disadvantage that makes repaying their debts difficult. Merely being inconvenienced by having to repay your debts isn’t enough.
To calculate whether you qualify for CNC status, the IRS officer assigned to your case may request financial documents such as past tax returns, pay stubs, outstanding debts, rent bills, and other information.
These documents will be used to calculate your “total positive income.”
Total positive income includes any positive value that you would show on the income section of a tax return, including:
- Schedule C income from self-employment
- Schedule F income from farming ventures
- Real estate income
- Other sources of income or investments
Once your income has been fully tallied, the IRS compares it to national and local standards of living to help determine whether you truly face economic hardship in paying your debts.
These standards of living are broken into four categories:
- National standards for food, clothing, and other expenses: Standard deductions are taken for necessary items such as food, clothing, housekeeping supplies, personal products, and miscellaneous expenses. For one person, the standard deduction is $639 per month. A family of up to four people gets a standard deduction of $1,650 monthly.
- National standards for out-of-pocket healthcare expenses: There also are national standard deductions for out-of-pocket healthcare expenses such as prescription drugs, glasses, and other medical services. Those under 65 years old get $49 per month in deductions, while people over 65 get $117 monthly.
- Local standards for housing and utilities: Using data from the U.S. Census Bureau, the American Community Survey, and BLS data, the IRS creates a schedule each year of allowable standard expenses for housing and utilities. This number varies by county, and you can see what the number is for your county in this IRS chart.
- Local standards for transportation: Standard deductions for transportation costs are based on national averages for a loan or lease payment, known as “ownership costs,” as well as additional monthly operating costs based on Census Region and Metropolitan Statistical Area data.
The IRS adds up all your standard deductions and subtracts that number from your total positive income. That number is then used to determine whether paying back your tax debt would be too large a financial hardship for you.
In addition to meeting the financial standards for CNC, the IRS usually requires that you be current on filing your tax returns. If you are not, you may have to file any back tax returns before your application for CNC status is considered.
How Will “Currently Not Collectible” Status Affect Me?
If you owe outstanding tax debts, you may already experience some of the frustrating aspects of dealing with the IRS.
Perhaps you’re receiving angry letters in the mail reminding you that you owe money. Or collection agencies are calling you at home or work, saying you must pay them to take care of things. Maybe you’ve received notice that your bank accounts or other property are being levied to satisfy your debt.
Whatever the method, the IRS works hard to contact people that owe money, and their efforts can be tiresome, embarrassing, and even frightening if you don’t see a way out.
If you’re granted CNC status, all these collections efforts stop on your account for a period of time.
Some of the collection and enforcement efforts that stop when your account is labeled as CNC include:
- Wage garnishment
- Suspended collection actions
- No more calls and letters
- No more credit reporting
- Deferred debt payments
- No more levies
This halt is in an effort to allow you some time to increase your income in order to be able to pay the debts.
In short, CNC status can give you some breathing room from the collections efforts but doesn’t completely release you from paying.
Do I Still Accrue Interest If My Account Is Labelled “Currently Not Collectible”?
Yes, interest and penalties continue to accrue on your overdue taxes even when you’re under CNC status.
That means you’ll pay more in tax debt in the long run than if you were to find a way to pay off your debts and avoid CNC designation. Once you are no longer in CNC status, you will be expected to pay your tax debt in full plus any penalties and interest that have been added to your account.
Do I Still Need to File Tax Returns If My Account is Labelled “Currently Not Collectible”?
Yes. You will still need to file your taxes every year while your account is considered non-collectible.
There are several reasons that you need to continue to file:
- It’s the law. Plain and simple, as long as you meet the income requirements for filing tax returns in a given year, you need to file those tax returns, regardless of whether or not you owe money.
- The IRS monitors your status. As you file taxes each year, the IRS looks at those tax returns and reevaluates your CNC status. If you’re found to have made enough money to push you out of CNC status, you will be asked to begin repaying your debts.
- Your refunds are applied to your debts. If you’re owed a refund in a tax year, even if your account is still labeled CNC, then those refunds will be kept by the IRS and applied to your overdue balance. If the refunds are large enough or you remain in CNC status for enough years, this could wipe out your debt to the IRS before you ever have CNC status removed.
- You must be in compliance with the IRS to keep CNC status. The requirement that you have filed all your tax returns doesn’t stop once you’ve received CNC status. Instead, you must remain in compliance with all tax return filing the whole time you have CNC designation, or you could risk the IRS removing it and requiring you to pay your debts.
How to Apply For IRS “Non-Collectible” Status
Before you begin the process of applying for “Currently Not Collectible” status, you need to ensure that all your past tax returns are filed, regardless of whether or not you owed money.
Work with an accountant or other tax professional to identify which years’ tax returns you need to file, collect the necessary information, and complete those tax returns. You must be in compliance with the IRS before they will consider your application for CNC status.
Gather Your Tax Information
Once you’ve caught up with filing your tax returns, begin gathering the information necessary to apply for CNC status. The IRS requires a lot of documentation on your financial situation, and you’ll need to provide as much as you can during the qualification process.
Some of the information the IRS may request includes:
- All income and living expenses
- All assets and their market values
- Bank statements from the last three months
- Proof of any out-of-pocket medical expenses
This information is used to calculate your total positive income and your standard deductions to arrive at a determination of whether you qualify for CNC status.
Fill Out a Form 433
When you apply for CNC status, you will fill out Form 433. This is a financial statement required by the IRS.
On this form, you will be required to:
- List all tangible and intangible assets you own, such as real estate, cars, stocks, etc.
- Determine a market value for these assets
- Track all your income for the last three months
- Track all your expenditures for the last three months
- Report and average your three-month income versus expenditures, broken down by category
Providing the IRS with this information helps them compare your numbers to national and local allowable averages and make a determination on whether or not you should be able to repay your debts.
Do I Need a Lawyer or Tax Relief Company to Help Me?
You can apply for CNC status on your own by working directly with the IRS. However, many taxpayers find that the advice and guidance given by tax professionals make the process less stressful and things go more smoothly.
In addition, a tax professional should be able to run some calculations of your tax situation prior to going through the CNC application process and give you an idea of whether or not you’re likely to qualify.
This could save you considerable time, expense, and frustration if your financial situation shows that you’re likely ineligible.
How Does “Currently Not Collectible” Status Work?
Once you have been deemed eligible for CNC status by the IRS, all active collections attempts will stop for a period of time.
That means any wage garnishments or levies on your accounts or property will go away, collections agencies won’t call you, you’ll stop receiving letters from the IRS, and you won’t be reported as delinquent to the credit reporting agencies.
However, this does not make the debt go away, nor does it mean your account stays frozen.
You still accrue interest and penalties based on the debt in your name while under CNC status, meaning your debt grows even when you’re not expected to pay it back.
While under CNC status, you are still required to file your annual tax returns. If these tax returns show that you are owed a refund, the IRS will apply this refund to your past-due account, decreasing your debt balance.
Based on the numbers reported on your tax returns, the IRS periodically reevaluates your financial information to see if you no longer qualify for CNC status. If this happens, the IRS will contact you seeking updated financial information similar to what you provided with your initial application.
Once you are determined eligible to pay your tax debt, you will be expected to pay the entire balance in your account, including any penalties and interest that accrued while you were in CNC status.
How Long Is My Account “Currently Not Collectible”?
CNC status is not intended to be a permanent fix. Instead, it’s meant to give you time to increase your disposable income and pay off your tax debt.
The amount of time an account stays labeled non-collectible varies from case to case. Some people only need a year or two before their income has increased enough, while others need several years.
Each case is given a closing code that designates when it will be pulled for review. If your case is pulled for review and your disposable income has increased to a point where the IRS believes you can repay your debts, then you will lose CNC status.
However, the IRS cannot legally pursue collection on debts more than 10 years old.
So, if you receive CNC status and, after 10 years, you are not able to increase your income to a point where you can pay your debts, the IRS cannot come after you for those debts even after you’re taken out of CNC status.
How Does “Currently Not Collectible” Status Differ from Other Tax Debt Relief?
“Currently Not Collectible” status is very different from other tax debt relief available from the IRS in a variety of ways, including:
1. CNC Status Does Not Wipe Out Your Debt
With some other tax debt relief, such as Offers in Compromise or installment agreements, you are making a plan with the IRS to pay off your tax debt. Whether in full as with an installment agreement or in part as with an Offer in Compromise, you are saying you have the ability to pay back the IRS.
CNC status, however, shows that you do not have the financial means to pay your debt at all, even in installments.
2. You Pay Nothing Now
When you are granted CNC status, you aren’t expected to pay for any of your tax debt, as it has been shown you don’t have the financial means to do so.
For other tax debt relief plans, you are usually expected to pay as much as you can up front as a “good faith” payment, then work with the IRS to either determine a reduced overall debt payment or to determine an installment plan.
3. CNC Status Is for Serious Hardship Only
While applying for other tax debt relief does require you to submit financial information to the IRS and demonstrate some measure of financial difficulty, the threshold isn’t as severe as it is for qualifying for CNC status.
When seeking an Offer in Compromise, for example, you have to show that you can pay at least a portion of your debt, but that paying in full would put a financial strain on you.
CNC status, however, means that you don’t have the means to pay back any of your debts at this time, temporarily halting the IRS’s attempts to collect from you.
4. No One Can Collect from You
Qualifying for CNC status means the IRS halts all attempts to collect your tax debt. This includes phone calls, letters, and levies.
If you reach another agreement with the IRS, such as an Offer in Compromise or an installment agreement, you are not spared collection attempts. That means you still may get letters from the IRS, calls from collection agencies, and wage garnishments so the IRS can collect the money you agreed to repay.
The Credit Review – Your Resource For Tax Debt Relief Help
When looking for someone to help you with the “Currently Not Collectible” status application process, you want a firm that’s trustworthy, affordable, and will work hard to get you the results you deserve. At the Credit Review, we’ve collected all the highest-rated tax relief services so you can compare and contrast. Learn more about your tax relief options here and find your fit today.
What does "Currently Not Collectible" mean?
A Currently Not Collectible status occurs when the IRS temporarily stops collections (such as a levy) against a delinquent taxpayer until their financial situation improves.
I Think I Qualify for CNC Status. What Do I Need to Do?
Either contact the IRS directly to begin the application process, or consult with a tax professional. Before you begin the application process, be sure you have filed all back tax returns.
The IRS Says I Don’t Qualify, but I Don’t Agree. Do I Have Any Recourse?
If the IRS says you don’t qualify for CNC status but you believe making payments would pose a major financial hardship, you do have some options.
- Request a conference with the IRS Collection Manager. IRS employees are required to give you the name and phone number of their supervisors if you request it.
- Hire an attorney, CPA, or enrolled agent to assist you.
- Appeal certain collections actions the IRS is taking against you.
- Contact the Taxpayer Advocate Service if paying your debts is causing you, your family, or your business difficulty, or if you or your business face the threat of immediate adverse action.
What If I Still Can’t Pay?
The IRS will reevaluate your case every so often, which means getting your updated financial information.
If you are still in a financial situation where you cannot pay your debts, the IRS may extend your CNC status.
To avoid owing any more back taxes in the future, speak with a tax professional about adjusting your withholdings so you have less taken out of each paycheck.
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