What is CNC (Currently Not Collectible) status with the IRS?

October 09, 2020 by Carolyn Richardson, EA, MBA
Economic Hardship

Being in over your head on paying your bills is never any fun for anybody, but it’s particularly no fun when one of your debts is to the IRS. It's especially difficult when you are suffering from a layoff or lack of job like many people currently are, or are working in a job that simply doesn’t pay enough to meet your needs (which is sometimes referred to as being underemployed). Unfortunately, with the current economic situation due to Covid-19, there are many taxpayers out there who, for whatever reason, owe money to the IRS and simply cannot make any payments right now. If you find yourself in this boat, what can you do about it?

 

The IRS offers several different options for paying off tax debt including paying them off over a period of time in installments. But for taxpayers who cannot make any payments without seriously jeopardizing their ability to pay for their basic living expenses, there is an option called Currently Not Collectible, or CNC status. The IRS also refers to this status as “economic hardship.”

 

How to Qualify for Currently Not Collectible (CNC) Status

 

To qualify for a currently not collectible status from the IRS, you'll have to show that you are not able to make any payments on your tax debt. This will generally require that you call the IRS, or have a representative call on your behalf, and explain your financial circumstances. In many cases, taxpayers may be required to submit a Collection Information Statement and provide proof of their income and expenses. Some taxpayers may be able to provide this information over the phone, such as those who have only wage income.

 

Many taxpayers are unfamiliar with this status and it is not always granted even when requested. It's important to keep in mind that even if you request economic hardship based on your real-world income and expenses, you may not qualify for this status. The IRS uses a “standard” family living expense calculation to determine whether you qualify for the CNC status. These standard living expenses may be considerably less than your actual living expenses, although they are adjusted for family size and location of where you live. As a result, you may be operating in the red according to your bank statements and your credit cards, but the IRS may have you operating in the black.

 

Currently Not Collectible (CNC) Status Does Not Mean Your Tax Debt Goes Away

 

It's also important to keep in mind that, even if you are granted CNC status, this does not mean that your tax debt has gone away. It only means that the IRS has suspended collection activity on your account. While you are in CNC status, they will not attempt to garnish your wages or place levies on your bank accounts or any property you may own. CNC status is also reviewed periodically by the IRS, usually annually, to determine if you still qualify as currently not collectible. If your financial circumstances have improved, you will need to seek other collection options to pay off your tax debt, such as an installment payment.

 

Penalties and Interest Will Continue to Accrue on Your Tax Debt

 

While the account is not being paid during the CNC hold, penalties and interest will continue to accumulate on the debt. This means that when you are eventually able to pay your tax debt, the debt will have grown to a larger number than it was when you requested the currently not collectible status. Therefore, it's important to remember to request this status only when you absolutely need to and not simply because you do not want to pay. It’s also important to remember this debt is still out there and if your finances improve, you can request an installment payment arrangement at any time. For those who are seriously in debt and cannot see paying off any part of it, other options may be available, such as an offer in compromise or bankruptcy.

 

Hire a Tax Professional to Help

 

If you find yourself in this situation where you cannot pay your tax debt and can’t face trying to resolve it on your own, you may want to hire a professional representative who can determine whether you can qualify for CNC status and help you with applying. An experienced tax professional, such as those who work for our Tax Debt Relief program, can also determine if you qualify for other alternative collection options that the IRS offers, such as an offer in compromise.

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Carolyn Richardson, EA, MBA
Learning Content Managing Editor

 

Carolyn has been in the tax field since 1984, when she went to work at the IRS as a Revenue Agent. Carolyn taught many classes at the IRS on both tax law changes and new hire training. In 1990, she left the IRS for a position at CCH, where she was a developer on both the service bureau software and on the Prosystevm fx tax preparation software for nearly 17 years. After leaving CCH she worked at several Los Angeles-based CPA firms before starting at TaxAudit as an Audit Representative in 2009. Carolyn became the manager of the Education and Research Department in 2011, developing course materials for the company and overseeing the research requests. Currently, she is the Learning Content Managing Editor. 


 

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