When the IRS Hits Pause: Understanding Currently Not Collectible Status and Your Path to Financial Relief

When tax debt becomes overwhelming and paying the IRS would mean choosing between basic necessities and tax obligations, Currently Not Collectible (CNC) status offers a crucial lifeline by allowing the IRS to temporarily halt collection activities when they determine you cannot afford to pay both your taxes and your reasonable living expenses. This powerful but often misunderstood tax relief option can provide breathing room for taxpayers facing genuine financial hardship.

What is Currently Not Collectible Status?

CNC status means Currently Not Collectible Status, which is the IRS recognizing your financial hardship and hitting “pause” on their collection efforts. Being currently not collectible does not mean the debt goes away, it means the IRS has determined you cannot afford to pay the debt at this time. This designation provides temporary relief from aggressive collection actions while you work to stabilize your financial situation.

While your account is in CNC status, the IRS generally won’t try to collect from you, such as issuing levy orders against your assets and income. However, it’s crucial to understand that the IRS will still assess interest and penalties to your account and may keep your refunds and apply them to your debt, as the IRS won’t suspend interest and penalty charges even if it stops trying to collect the balance due.

Who Qualifies for CNC Status?

Qualifying for CNC status requires demonstrating genuine financial hardship to the IRS. To be granted CNC status, you must prove to the IRS that paying anything toward your tax liability would cause you financial hardship, where financial hardship doesn’t mean financial inconvenience but exists when paying your back taxes would cause you to be unable to afford basic necessities like food or healthcare.

Common situations where taxpayers may qualify include:

• When your only source of income is government assistance such as the SNAP program, disability, Social Security, and public housing programs, as it’s unlikely that you have sufficient disposable income to make any payments toward your tax debts
• A retired individual on Social Security with just enough to cover rent, food, and medical expenses; a single parent earning low wages with no extra money after rent, utilities, and childcare; or a self-employed person struggling with business downturns and barely covering necessary household expenses
• When you cannot make the IRS minimum acceptable payment of $25 per month without economic hardship, you should be granted CNC status

The Application Process and Requirements

Prior to approving your request to delay collection, the IRS may ask you to complete a collection information statement (Form 433-F, Form 433-A or Form 433-B) and provide proof of your financial status including information about your assets and your monthly income and expenses. To request Currently Not Collectible status for your tax debt, call the IRS using the phone number on your notice if you recently received one, or otherwise call 800-829-1040.

The IRS evaluates CNC eligibility based on income, necessary living expenses, and assets, reviewing whether your monthly income is barely enough to cover necessary living expenses based on IRS national and local standards, and if there’s little or no disposable income after essential expenses, you may qualify.

Benefits and Limitations of CNC Status

The primary benefit of CNC status is the halt of IRS collection actions, meaning you won’t face wage garnishments, bank levies, or collection calls while your status is active, offering breathing room to focus on stabilizing their financial situation without the constant pressure of IRS collections.

However, there are important limitations to understand:

• CNC status doesn’t forgive your debt, and interest and penalties will still accumulate, meaning the longer you’re in IRS non collectible status, the more your debt could grow
• The IRS may file a Notice of Federal Tax Lien (NFTL) even if your account is placed in CNC status, and the filing of an NFTL can affect your credit rating and your ability to sell property or other assets
• Currently not collectible status isn’t a permanent solution for most taxpayers, as penalties and interest continue to accrue on your back taxes while you’re in non-collectible status

How Long Does CNC Status Last?

CNC status typically lasts at least two years, but it is not permanent, as the IRS periodically reviews a taxpayer’s financial situation to determine if they can start making payments, and if your income increases, the IRS may remove CNC status and expect payments. The IRS may contact you to update your financial information to be sure your ability to pay hasn’t changed.

One significant advantage is that the IRS’s 10-year statute of limitations on collections continues to run while you’re in CNC, and if your financial situation doesn’t improve and the statute expires, the tax debt may be permanently wiped out.

Professional Guidance Makes a Difference

Navigating the CNC application process can be complex, and having experienced professional representation can significantly improve your chances of approval. Companies like All County Tax Resolution, based in Pennsylvania and New York, specialize in helping taxpayers achieve tax debt relief through various resolution strategies. All County Tax Resolution is committed to being recognized for excellent customer satisfaction by providing prompt and professional assistance while maintaining the highest level of privacy and confidentiality throughout the resolution process.

For taxpayers facing financial hardship, professional tax resolution services can impact tax resolution outcomes by ensuring proper documentation, accurate financial disclosure, and effective communication with the IRS throughout the CNC application process.

Moving Forward with CNC Status

CNC status can provide a valuable opportunity to get back on your feet financially, as with the IRS temporarily pausing collection efforts, you can use this time to create a budget, increase your income, or explore new employment opportunities, with many individuals finding that being in CNC status allows them to stabilize their finances and eventually work towards resolving their tax debt.

If you’re struggling with overwhelming tax debt and believe you may qualify for Currently Not Collectible status, don’t wait for the IRS to take aggressive collection action. Many people who ignore their tax bill get a false sense of security that the IRS will ignore the issue too, but while the IRS can put taxpayers into CNC status if they can’t locate them, those taxpayers will be open to federal tax liens, bank levies, and wage garnishments, making the only way to ensure the IRS doesn’t take these measures when you can’t pay your taxes to proactively contact the IRS to request CNC status.

Understanding your options and working with qualified tax professionals can help you navigate this challenging situation and find the relief you need to regain financial stability while addressing your tax obligations responsibly.