Do you deserve a break from the unrelenting pressure of the IRS? You just might be entitled to one! “Currently Not Collectible” (CNC) is a status assigned to taxpayers whom the government has deemed unable to pay their outstanding tax liabilities. When an account is designated Currently Not Collectible, it temporarily pauses the IRS collection process—meaning no harassing letters, intimidating phone calls, or threatening levies. If you received an intent to levy notice, are having wages garnished or need general back tax relief, read on to learn more about this IRS non-collectible status and whether if you might qualify.
What Does Currently Not Collectible Mean?
You may have this term in television and radio ads for various tax companies talking about “Currently Not Collectible” or a “CNC” with buzzwords like, “available for a limited time only.” That is untrue. There is no “limited time available” for someone to reach Currently Not Collectible status.
“Currently Non Collectible” is a status a delinquent taxpayer can have with the IRS after the IRS temporarily pauses any active collections against the taxpayer.
“Currently Non Collectible” will stop levies, threatening letters and collection enforcement until your current financial situation improves. The IRS will do this if the taxpayer has demonstrated that collections have put them in economic hardship and cannot afford to pay their back taxes.
In most cases, the IRS won’t grant this status to a taxpayer until they are compliant.
Who is Eligible for Non-Collectible Status?
The definition and qualification for IRS “Currently Not Collectible” is found in Part 5, Chapter 16, Section 1 of the Internal Revenue Manual. It states that for a taxpayer to qualify or IRS CNC, they must demonstrate a financial hardship which, after paying for the cost of living expenses, leaves little to no room to pay off an outstanding tax debt. The taxpayer must demonstrate a severe economic disadvantage, and not just a mild inconvenience.
To calculate this, an IRS officer will evaluate the individual’s “total positive income”. Total positive income includes any positive value shown in the income section on a tax return, such as:
- Schedule C income (self-employment profits)
- Schedule F income (farming business ventures)
- Real estate income
- Other sources of income or investments
The IRS will tally up your income and compare it against both national and local standard living expenses, which are broken up into four categories. The standards the IRS allows you to deduct from your total positive income without question include:
- National Standards—Food, Clothing, and Miscellaneous
Monthly living expenses such as food, housekeeping supplies, apparel and services, personal products and services, and miscellaneous expenses are considered standard deductions ($639 for one person, up to $1,650 for four persons).
- National Standards—Out-of-Pocket Healthcare Expenses
Standard deductions have been established for out-of-pocket health care expenses including medical services, prescription drugs, and medical supplies such as eye glasses ($49 for those under 65, $117 over 65).
- Local Standards—Housing and Utilities
Standards such as mortgages/rent, property taxes, gas, heating, garbage collection and so forth are based by county and derived from the U.S. Census Bureau, American Community Survey and BLS data. Find the deductible amount for your county here.
- Local Standards—Transportation
Transportation deductions are calculated based on nationwide figures for monthly loan or lease payments—referred to as “ownership costs”—and additional amounts for monthly operating costs broken down by Census Region and Metropolitan Statistical Area (Public transportation: $189; Ownership costs: $485 for one car, $970 for two cars; Standard operating costs are defined by region).
The IRS will combine your standard expenses and deduct them from your total positive income to determine your net disposable income, which could theoretically be spent on tax payments; if paying off a tax debt after your basic cost of living would create an unfair economic advantage, the IRS might consider your account as non-collectible.
What Happens Under IRS CNC?
Placing a taxpayer under IRS Currently Not Collectible status will stop a tax levy and temporarily suspend all collection and enforcement activity. Once they agree that you’re unable to pay off your balance due to financial hardship and put your account into CNC, they are required to essentially leave you alone—with the exception of an annual bill notice—and can no longer make continuous collection attempts. This means:
- No more wage garnishment
- Suspended collection actions
- Cessation of calls and letters
- No further credit reporting
- Deferred debt payments
Keep in mind though, once your account acquires Currently Not Collectible status, your debt is not simply wiped away; you will still be expected to pay off your tax debt once your situation improves. Although the IRS considers you Currently Not Collectible given your current situation, they will later reevaluate your standing and capability to pay your tax liabilities.
Once the taxpayer is placed into a CNC, the IRS will monitor their tax returns each year and see if their income has increased. If the taxpayer’s income has increased, the IRS will remove the taxpayer from this status and ask them to complete a new financial statement to determine if they can make payments.
Also, even though you save money through deferred payments and lifted garnishments, you’ll ultimately be paying more in the end, because interest and penalties will continue to accrue on whatever outstanding balance is due.
You’re still required to file income tax returns, and any tax refunds owed while the account is in CNC will be automatically offset and applied to the outstanding debt until it’s been settled. It’s therefore important to talk to a tax professional and learn all of your back tax relief options, such as an offer in compromise, which could be more advantageous depending on your situation.
How Long is My Account Non-Collectible?
Currently Not Collectible status isn’t intended for a permanent solution, but only temporary relief. The amount of time an account stays protected under a CNC status varies on a case by case situation. When the IRS officer determines the account as non-collectible, they’ll enter a closing code which will eventually pull your case for re-review. Which code they use, and when it triggers a review process, depends on your net disposable income and the circumstances of your financial hardship.
Generally, the IRS has up to ten years to attempt to collect on taxes, after which point the statute of limitations are enforced. Our financially based CNC’s do not extend this statute of limitations.
One important thing about being considered for a CNC is that the IRS Statute of Limitations is still running for those back taxes owed. The statute of limitations lasts 10 years from the date the taxes are due. If they are not collected in this period, they can no longer collect on these amounts (with some exceptions).
How Can I Apply for IRS Non-Collectible Status?
To be considered for Currently Not Collectible status, you’ll need to provide the IRS with a thorough financial report which will determine the fate of your case. Before applying, be sure all tax returns for previous years have been filed—even if you can’t pay them now—to place your account in good standing with the IRS. The documents you’ll need to gather for your CNC application include:
- All income and living expenses
- All assets and their market values
- Bank statements from the last three months
- Proof of any out-of-pocket medical expenses
These documents will help you fill out Form 433, a financial information statement required by the IRS. Form 433 provides the government with a roadmap to your finances they’ll use to determine your eligibility for Currently Not Collectible status. You’ll need to fill out detailed information, and be prepared to:
- Make a list of all tangible and intangible assets you have (real estate, cars, stocks, etc.)
- Determine a market value for all assets
- Track how much income was made in the last three months
- Track how much was spent in the past three months
- Report and average your three-month income versus expense analysis, broken down by category
Applying for IRS non-collectible status can be a daunting task, and professional help ensures your greatest chance at achieving CNC for your account. Community Tax’s team of seasoned tax practitioners can plead your case before the IRS and help you reach the best solution possible. Allow our experienced professionals to help with the IRS and guide you through a process which can otherwise be an overwhelming ordeal. Contact us today to see how we can help resolve your case and learn how feasible financial freedom can be.