Currently Not Collectible Status
What Is Currently Not Collectible status?
A Currently Not Collectible status (CNC) is a temporary solution the IRS offers for tax debt. It means the IRS has concluded that you cannot pay your IRS tax debt. As such, the IRS may temporarily postpone collection actions such as income garnishment or bank account levies and the need to arrange a payment plan.
A Currently Not Collectible status does not imply that you are exempt from paying your IRS debt. However, it gives you enough room to breathe while you attempt to pay the debt. According to the tax law of the United States, only people facing economic hardship can get a CNC status for their IRS.
To qualify for this assistance, you must prove to the IRS that your financial status will not allow you to pay your IRS debt. The IRS Currently Not Collectible Status is usually approved if the taxpayer’s income is so low that it does not cover basic living expenses like food, housing, and electricity.
In this article, we will explain what the IRS currently not collectible status means and how you can qualify for it.
What Happens to Your Account When it is in Currently Not Collectible Status?
When a taxpayer is placed in Currently Not Collectible Status by the IRS, the IRS halts all debt collection activities.
Once the IRS agrees that you cannot pay off your tax liabilities due to financial hardship and place your account in CNC, the IRS will not bother you anymore except with a yearly bill notification. This implies:
- No wage garnishment
- Paused collection process
- No more phone calls and emails
- No more credit checks
- Deferred debt payments
Keep in mind, however, that if your account is designated as Currently Not Collectible, your tax obligation is not eliminated. The IRS will still require that you pay off your debt whenever your financial condition improves.
The IRS temporarily assigns your account with Currently Not Collectible Status due to your present circumstances. With time, they will reassess your position and capacity to pay tax debts in the future.
Once a person is assigned to an uncollectible status, the IRS will review their annual tax returns to see if their income increases. If the taxpayer’s income has increased, the IRS will remove them from this status and request new bank statements to establish their ability to make payments.
The taxes you owe the IRS will increase even with a CNC. This is because the IRS will still charge you penalties and interest until you pay the total amount.
You must submit your income tax return while on a CNC status. Also, any tax refunds due while the account is in CNC will be automatically added to the balance owed until your tax controversy is resolved.
The IRS may also file a Notice of Federal Tax Lien on your property, which will be made public. The Notice of Federal Tax Lien notifies creditors that you owe the IRS an overdue debt.
Therefore, it is essential to seek IRS Help with a tax attorney and understand all your back taxes relief choices, such as an Offer in Compromise IRS, which may be more favorable depending on your circumstances.
How Long Will My Account Be Inactive?
The Currently Not Collectible designation is not meant to be a permanent solution but rather a temporary one. However, the time an account is protected by a CNC status varies.
When an IRS agent concludes that a particular account is uncollectible, the IRS enters a closing code that will ultimately cause your case to be re-examined. Your total positive income and the nature of your financial difficulty will determine which code is used and when a review is initiated.
For instance, if the IRS has granted you CNC status based on an annual income of $30,000, it may set a closure code to flag your account whenever your income reaches $35,000.
In most cases, the IRS has up to 10 years for collection activity on owed taxes before the statute of limitations applies.
A crucial aspect of being evaluated for a CNC is that the IRS Statute of Limitations for delinquent taxes is still in effect. The statute of limitations is ten years from the due date of taxes.
If the IRS cannot collect the tax debt within this time frame, it can no longer be collected (with some exceptions).
How to Qualify for IRS CNC Status?
To qualify for the IRS Currently Not Collectible Status, taxpayers must show proof to the IRS that paying the taxes owed will cause them financial hardship.
The IRS considers financial hardship as the inability to make any payments towards tax liability due to the taxpayer’s current financial situation. If these taxpayers were to pay their taxes with their current financial situation, they might not have enough money for food, housing, clothing, and other essential expenses.
The IRS generally determines eligibility for Currently Not Collectible Status (CNC) based on the following criteria:
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The IRS has just a few years left to try and collect the taxes they are owed.
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The taxpayer has a yearly income of less than $84,000.
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Your monthly living expenses for housing and food are within the acceptable range established by the IRS.
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After paying utility bills and other monthly expenses, there is little to no money left over at the end of the month.
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You rely entirely on government assistance programs like Social Security, welfare, or unemployment insurance.
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You have lost your job, which is your only income source.
How to Request CNC?
To request CNC status, you’ll need to contact the IRS directly or hire a tax professional to contact the agency on your behalf. You’ll need to provide your financial information, such as your income and expenses, and you may need to provide supporting documentation (this may include information such as your assets and your monthly income and expenses).
The IRS will need you to submit a Collection Information Statement (IRS Form 433-FPDF, Form 433-APDF, or Form 433-BPDF).
If you don’t qualify for currently-not-collectible status, you may qualify for other arrangements under the IRS Debt Forgiveness Program. An excellent example is the partial payment installment agreement with the IRS.
Applying for Currently Not Collectible Status
If you owe taxes, it is crucial that you pay them back. However, you can request a CNC status with the IRS if you cannot.
Sometimes, however, there may be better solutions than the CNC. Depending on your situation, you may be able to get IRS negotiations that are better.
So, if you require a tax attorney for IRS negotiations or stopping an IRS levy, you can speak with one of our attorneys at Hutton Tax Solutions, and let’s see how we can help.