If you are financially unable to pay your taxes, you may qualify for a designation from the Internal Revenue Service (IRS) as “Currently Not Collectible” (CNC). This means that you can defer payments to the IRS until you are financially able to pay.
Definition and Example of “Currently Not Collectible”
“Currently Not Collectible” (CNC) means that the Internal Revenue Service (IRS) has determined that you are unable to pay your taxes. They will not garnish your wages or levy your bank accounts, nor will they require you to set up an installment agreement.
You must have little or no money left after paying for your basic living expenses each month, such as rent, utilities, and groceries, to qualify for this designation. For example, if your income is insufficient to cover food, rent, and utility bills – and you can prove it – the IRS may determine that you qualify for CNC status.
How “Currently Not Collectible” Works
Being in “Currently Not Collectible” status can provide you with time to get back on your feet and find a way to pay your taxes to the IRS without the immediate threat of collection activities. However, your tax debts do not disappear. You will still owe the taxes due, and the balance will continue to accrue interest and late penalties.
The IRS will retain any tax refund you may be entitled to in future years until your balance is paid off. This process is referred to as “refund offset.” The IRS may also file a tax lien against you, which will appear on public records. This will notify creditors that you have an outstanding balance owed to the IRS.
A tax professional can help you assess whether you are a good candidate for “Currently Not Collectible” status and can suggest other options for dealing with your tax debts. They will calculate the monthly payments you should make in an installment agreement, the potential amount you would owe if you requested an offer in compromise, and they will review your qualifications for CNC status.
Note: Installment agreements, offers in compromise, and CNC status use similar financial data.
For example, let’s say you are 65 years old and have an old tax debt that is eight years old. You earn $30,000 annually and have enough money to cover your rent, utilities, groceries, and your monthly bus fare after taxes are taken out of your pay. The IRS may review your financial situation and determine that you are eligible for CNC status.
Requirements for “Currently Not Collectible”
To qualify for “Currently Not Collectible” status, paying your taxes must cause you significant problems. According to the IRS, “significant problems” means that paying anything toward your tax debt right now would result in a “serious hardship.” You would be living without some basic necessities if you were to give your money to the IRS instead. This does not mean that living without making some expenditures would be uncomfortable or inconvenient.
To determine your eligibility, the IRS will review whether you meet one or more of the following criteria:
- Only a few years are left in the ten-year statute of limitations that the IRS has to collect your tax debt.
- You earn less than $84,000 annually.
- Your living expenses fall within IRS guidelines.
- You have little or no money left at the end of the month after paying your basic living expenses.
- Your only income is from Social Security benefits, assistance benefits, or unemployment benefits.
- You are unemployed and have no other source of income.
If
If you qualify, the IRS will place a “Code 1” on your account when it agrees to grant you “Currently Not Collectible” (CNC) status. The code informs the IRS when to pull your file for review to determine if your circumstances have changed. This code is related to annual income. For example, if the IRS grants CNC status when your income is $30,000, it may place a Code 1 on your account when your declared positive income reaches $36,000.
Request from the IRS what code was used when setting your CNC status. This way, you will know the income level that will trigger an account review and when.
Note: The duration you can remain in CNC status is directly tied to the amount of income you earn and the speed at which your financial situation improves.
Income Requirements
The IRS considers various types of income for CNC status, including:
- Wages
- Interest
- Stock dividends
- Net profit from Schedule C
- Net profit from Schedule F
- Distributions
- Other income
Expense Requirements
Allowed living expenses are referred to as “Financial Standards for Collection.” There are four groups of data for Expense Standards:
- Food, clothing, and other household expenses
- Out-of-pocket healthcare expenses
- Housing and utilities
- Transportation
Suppose you pay $6,000 per month in rent. You are single and have no dependents. The IRS knows that it costs about $2,000 to rent a one-bedroom apartment in your city. They will only allow you $2,000 as a rent expense regardless of how much you actually spend.
Requesting “Currently Not Collectible” Status
To qualify for “Currently Not Collectible” status, you will need to either contact the IRS directly or hire a tax professional to contact the agency on your behalf. You will need to provide information about your income and expenses, and you may also need to submit documentation to support that information.
If you do not qualify for “Currently Not Collectible” status, you may be eligible for a payment agreement to make tax payments more manageable.
Do not ignore your tax debts; the IRS can seize your wages and bank account. It is best to be proactive about addressing overdue taxes.
FAQs
How can I request “Currently Not Collectible” status?
Call the IRS at 800-829-1040 to request that your account be placed in CNC status. You can also ask a tax professional to contact the agency on your behalf. Once you contact them, expect to provide documentation about your financial situation to support your claim for CNC status. You may need to fill out a version of Form 433, Collection Information Statement for Wage Earners and Self-Employed Individuals.
If my account is currently not collectible, will that affect my credit rating?
Yes, it is possible that CNC status can affect your credit rating. If your account is considered currently not collectible, the IRS may file a Notice of Federal Tax Lien (NFTL). Although CNC status is not reported to the major credit bureaus, the NFTL is still a public record that is visible to lenders, landlords, and employers.
Was this page helpful?
Thank you for your feedback! Let us know why! Last
Sources:
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we verify facts and maintain the accuracy and reliability of our content.
IRS. “Temporarily Delaying Collection Process.”
IRS. “IRS Internal Guide: 5.16.1 Currently Not Collectible.”
IRS. “Publication 954, IRS Collection Process.”
IRS. “IRS Internal Guide: 13.1.7 Taxpayer Advocate Service Case Standards.”
IRS. “IRS Internal Guide: 5.15.1 Financial Analysis Handbook.”
IRS. “
Taxes. “Financial Standards for Collection”.
Tax Attorney Service. “Currently Not Collectible”.
Tax Authority. “Temporary Delay in Collection Process”.
Source: https://www.thebalancemoney.com/currently-not-collectible-3193461
Leave a Reply