Currently Not Collectible

Currently Non Collectible Right For You?

Currently Not Collectible Status—Requirements and How to Apply

Key Takeaways

• Immediate Relief: Learn how CNC status can provide relief to halt collections
• Eligibility & Applying: Know the requirements to qualify & steps to apply
• Impact on Tax Debt: What happens with interest, penalties, and taxes owed while in CNC status
• Alternative options: Is CNC status best for you? Explore alternatives like installment agreements, partial payment installment agreements, and offer in compromise.
• Professional Guidance: Find the benefits of consulting with a professional to determine the best long-term action plan for your situation

Can’t afford to pay your taxes? Struggling to make ends meet? Understand how applying for Currently Not Collectible (CNC) status can provide you with temporary relief from IRS collection actions. Is a CNC even the right option? Understand what the alternatives are and what is the best fit for your financial situation.

This guide will walk you through the requirements, the application process, what to expect after being accepted, and more. We can help you apply for hardship status with the IRS. To learn more, contact The W Tax Group today.

How to Apply for Uncollectible Status

To apply for uncollectible status, you need to prove to the IRS that you cannot afford to pay both your living expenses and your tax bill. The IRS will not require you to pay your tax bill if it causes severe economic hardship.

Typically, to prove hardship, you will need to fill out Form 433-F (Collection Information Statement). This form requests detailed information on your assets, debts, income, and expenses.

If the IRS wants more information, you may need to file Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals) or Form 433-B (Collection Information Statement for Businesses). The IRS may also require you to provide supporting documentation to back up the info you include on your 433 forms.

How the IRS Determines If Your Account Is Uncollectible

Unfortunately, just because you believe you can’t afford your tax bill doesn’t mean the IRS will agree. The IRS has a very narrow idea of what people should be spending on living expenses.

The agency has mapped out standards for food, clothing, shelter, and other essential costs for people in different areas of the country, if your expenses exceed these amounts, the IRS typically won’t take them into consideration when reviewing your request for uncollectible status.

For instance, if the IRS thinks that you should be spending $1000 on housing and you’re spending $1500, you won’t be able to count the $500 as an allowable expense. Note these are just sample numbers. Additionally, the IRS also won’t take credit card payments or other expenses it considers non-essential into account.

The IRS makes exceptions for certain situations. In particular, if you have a lot of healthcare expenses the IRS will take them into account when reviewing your application. A tax attorney has a lot of experience negotiating with the IRS and a thorough understanding of their allowable living expenses. They can often help you get the largest exemptions possible for your situation.

Other Factors the IRS Considers When Assessing Currently Not Collectible Status

Before labeling your account as currently not collectible (also called status 53), the IRS will want to ensure that you have taken steps to avoid getting into this situation again.

For instance, if your tax liability is due to your employer not withholding enough from your paycheck, the IRS may make you change your withholding before it approves CNC.

Similarly, if your tax liability is due to not paying taxes related to self-employment income, the IRS may require you to submit a year’s worth of estimated quarterly taxes before it is willing to approve your application.

What to Expect With IRS CNC Status

If the IRS labels your account as uncollectible, interest and penalties will continue to accrue on your account. You can make voluntary payments if you like, but you don’t have to. The IRS will keep your tax refunds and apply them to your balance.

When you’re in CNC status, the IRS may file a federal tax lien against your assets, but generally, the agency won’t levy (seize) any assets. If you have a serious delinquency, the agency has the right to contact the State Department to have your passport revoked, but typically, the agency doesn’t do this with uncollectible IRS accounts.

Generally once a year, the IRS will review your financial situation. If you accrue additional federal tax liabilities, the IRS may remove you from CNC status. You are not necessarily required to file all returns when on CNC status, but the IRS recommends doing so.

For the most part, your day-to-day life won’t change much when you’re currently not collectible. However, you will need to consider any changes in your financial situation and think about how those changes may affect your CNC status. 

If the IRS discovers a change in financial circumstances during their regular checks, they may remove you from currently not collectible status. If that occurs, you should begin preparing. This may involve putting money aside for an offer in compromise, figuring out how much an installment agreement would cost, or talking to a tax professional.

What If the IRS Rejects Your CNC Application

If the IRS refuses to label your account as uncollectible, you can request a meeting with an IRS collection manager. You can also appeal the collection actions the IRS takes against you. Alternatively, you may want to contact a tax professional to help you. You may want to look into an offer in compromise if you can’t qualify for a CNC.

Alternatives to CNC Status

CNC status isn’t a good fit for everyone. Some people would prefer to handle their tax issues immediately, rather than having their tax debt looming over them indefinitely. If you’re wary of applying for CNC status or you’re uncertain if you would qualify, there are options to explore:

• Installment agreement: Perhaps you cannot pay what you owe in full, but you can commit to monthly payments. Short-term payment plans last up to 180 days and long-term plans last up to 72 months. While interest does continue to accrue, your failure to pay penalty is cut in half while you’re in an installment agreement.
• Partial payment installment agreement: This requires you to make monthly payments, much like a standard installment agreement. However, it does not result in you paying off your entire tax debt. You make monthly payments until the collection statute expires, at which point you won’t owe any more money.
• Offer in compromise: An offer in compromise allows you to settle your tax debt for less than you actually owe. The IRS only accepts an offer in compromise if it genuinely reflects what you are capable of paying. Depending on your circumstances, you may pay the amount in one lump sum or across multiple payments.

Comparing CNC Status and an Offer in Compromise

For those who are considering CNC status, an offer in compromise is often the next best option. It allows you to write off your tax debt without penalties and interest accruing for years to come.

Much depends on how old your tax debt is. Consider this: the IRS has ten years to collect your tax debt. If you have avoided paying for nine years, it may be in your best interest to apply for CNC status. The debt is about to become uncollectible, so waiting out the clock may be best for your financial situation—especially if you are concerned about making ends meet. 

But if the tax debt was recently assessed, the IRS has nearly ten full years to collect from you. In this situation, an offer in compromise may be the better option for you. If there’s a good chance your financial situation will change in the next ten years, the IRS will come after you for the full amount you owe. This will likely include a substantial amount in penalties and interest. You could end up paying far more than you initially owed. In this situation, an offer in compromise may help you address your tax debt, get a fresh start, and move forward.

CNC and the Collection Statute Expiration Date

Most tax liabilities expire the later of 10 years after they’re assessed or 10 years after the filing due date. The date the bill expires is called the Collection Statute Expiration Date (CSED). If the CSED occurs while your tax account is in CNC status, the tax liability will go away. The IRS will no longer be able to collect on this amount.

There are certain actions that can extend the CSED. For instance, if you apply for an offer in compromise, the CSED clock will stop ticking while the IRS reviews your application, but the time will be added back on once your application is approved or denied.

Similarly, if you file for bankruptcy, the clock will also be paused temporarily and the time will be added on. In some cases, the IRS asks taxpayers to sign a waiver to extend the CSED. Ideally, you should never sign this type of document without consulting with a tax professional.

Get Help Applying for Currently Not Collectible Status

If you cannot afford to pay your tax liability, the IRS collection tactics could put you in economic hardship. Don’t let that happen. Instead, if you qualify, apply for CNC status and temporarily stop the collection activity on your account. To learn more about CNC and other options for dealing with unpaid taxes, contact us today.

The tax attorneys at The W Tax Group have extensive experience helping people who cannot afford to pay their taxes or who need help negotiating with the IRS. We can help you get the best outcome possible for your situation.

FAQ About IRS Currently Not Collectible Status

What happens if my financial situation improves?

If your financial situation improves, you should expect to be taken off of CNC status when the IRS next reviews your account. At that point, you will need to decide how to address your tax debt to avoid levies, garnishments, and other collection actions. You may want to meet with a tax professional to discuss an offer in compromise or installment agreement.

What if my financial situation doesn’t improve?

As long as your financial situation does not change, it’s likely that you’ll remain uncollectible. Note that even small changes in your finances could result in losing CNC status, even if you believe you’re still unable to make payments. If you’re unsure about how a recent financial change could affect your status, you may want to meet with an attorney.

How can I ensure my CNC status is maintained?

You can generally maintain your CNC status by keeping your financial situation the same as it was when the IRS deemed you uncollectible. Additionally, make sure you respond to all correspondence the IRS sends you. If they request documentation and you fail to respond, you may lose your CNC status regardless of your actual financial status.

What triggers my CNC status to be reviewed?

The IRS may look at your reported income on your tax return in addition to reviewing your account on an ongoing basis.

Can I make payments toward my tax debt while in CNC status? Should I?

You can make payments toward your tax debt while you are considered uncollectible. There are benefits and drawbacks to doing so. If you are genuinely in financial distress, making payments toward a debt that may eventually be wiped clean may not be the best choice for you. On the other hand, if you know you’ll eventually lose CNC status, making periodic payments can limit the amount of interest you ultimately pay. It’s best to discuss your options with a tax attorney before making any decisions.

Do I still need to file tax returns while in CNC status?

If you are required to file tax returns under the IRS’s requirements—making at least the standard deduction, earning at least $400 in self-employed income, or meeting other requirements—you should file your tax returns. Furthermore, you should ensure that you pay all taxes in full and on time. Incurring additional tax debt could result in the loss of CNC status. In some cases, new tax debt can be rolled into your CNC status, but that’s not a guarantee.

What happens to my tax returns in CNC status?

Any tax refunds you receive while you are considered uncollectible will be applied to your tax debt. If you are relying on your refund to avoid eviction or otherwise meet your basic living expenses, you may be able to avoid losing it to your tax debt by working with the Taxpayer Advocate Service.

What situations warrant the IRS revoking CNC status?

A substantial increase in income or decrease in living expenses may result in the loss of currently not collectible status. If the IRS reviews your documentation and believes your situation has improved enough to resume payments on your tax debt, they may revoke your CNC status. They may also revoke your CNC status if you ignore their attempts to request financial documentation.

How long is my account considered not collectible?

Your tax account is considered uncollectible for as long as your financial situation leaves you unable to pay your tax debt. Generally, the IRS reviews accounts every six months to two years. On average, they review accounts on an annual basis. You may be considered uncollectible for up to ten years, at which point the collection period ends and they can no longer collect on your debt.