4 Ways To Get "Currently Not Collectible" Status From The IRS

You're getting tax bills from the IRS, but you can't afford to pay them. The IRS is threatening a lien or levy. You learn that you could negotiate a payment agreement with the IRS. But, you can't afford to pay anything toward a monthly payment plan. Thankfully, there's another solution available to you. When you can't afford to make any payment to the IRS, you may be eligible for currently not collectible (CNC) status. 

What Is Currently Not Collectible (CNC) Status And Is It Right for Me?

If you're granted IRS currently not collectible status, the IRS will no longer try to collect taxes from you via bank account levies, wage garnishments, or seizures of your other property. If you can't afford to pay anything toward your IRS tax debt, you'll need to request CNC status. Otherwise, you could see your paycheck garnished or have funds in your bank account taken from you due to a bank account levy. 

When your account is classified as currently not collectible status, the IRS will still take your tax refund. It may file a Notice of Federal Tax Lien against you, but probably won't unless you owe more than $10,000. It won't engage in other IRS collection activities like levies while you have uncollectible status. 

Currently not collectible status isn't a permanent solution for most taxpayers. Penalties and interest continue to accrue on your back taxes while you're in non-collectible status. If your financial situation improves, the IRS may inform you that it intends to restart collection actions. The IRS will have a trigger it refers to as a “closing code” to revoke currently not collectible status if your income reaches a certain level. 

If you're granted non-collectible status, it's a good idea to ask the IRS for information on the code assigned to you. If you're assigned a revenue officer, ask that officer. If you're not assigned a revenue officer, call the number that's on the notices you're receiving. If your financial situation has improved, the IRS may notify you that it plans to restart collection activity. Even if you don't file an income tax return, the IRS will know about any income you receive that's reported on a W-2 or 1099. 

If your income increases and triggers a closing code, you'll need to contact the IRS about an installment agreement or other settlement option. Of course, something else could have changed in your life that would allow you to keep your non-collectible status despite an increase in your income. For example, you may have a new dependent that may cause the IRS to raise your code to $34,000, thus allowing you to remain under uncollectible status.

If your financial situation will improve soon and you will have to start repaying the IRS, requesting CNC status might not be your best option.  There are better tax settlement solutions for most taxpayers long-term, even if CNC status serves as a helpful, temporary stopgap. These solutions include installment agreements, partial payment installment agreements (PPIA), or offers in compromises (OIC). 

With that said, if your income doesn’t improve before the end of the IRS 10-year statute of limitations for collection and you remain under CNC status during this time, the IRS will write off your tax debt. CNC status is often the best tax relief measure for those who have a permanent issue affecting their income-earning ability. A permanent disability is a good example of this scenario.  

4 Reasons That The IRS May Grant CNC Status

To be granted CNC status, you must prove to the IRS that paying anything toward your tax liability would cause you financial hardship. Financial hardship doesn't mean financial inconvenience. The threat of genuine financial hardship exists when paying your back taxes would cause you to be unable to afford basic necessities like food or healthcare. 

1. There's little time left until the collection statute expiration date (CSED). This scenario could help you obtain currently not collectible status because you might not be able to pay the IRS without economic hardship in the little time left before the CSED. 

2. Your only source of income is government assistance. Government assistance such as the SNAP program, disability, Social Security, and public housing programs help Americans meet their minimum needs. If your income is only from these programs, it's unlikely that you have sufficient disposable income to make any payments toward your tax debts. Of course, if your financial situation improves, you will lose CNC status and the IRS will try to collect from you again. 

3. You're unemployed and unemployment compensation is your only source of income. You're likely to get uncollectible status in this situation because unemployment compensation is usually less than your wages were. Using unemployment compensation or any form of government assistance to pay your back taxes is using government funds to pay government debts. That is, the government would be paying itself.

4. You’re suffering from financial hardship. The three preceding examples are types of financial hardship, but those aren’t an all-inclusive list. There are many reasons for financial hardship. Whatever your reason, the IRS will want proof of the situation as well as your financial information. 

The IRS isn't going to stop collection processes just because you have little time left on your statute of limitations, you're living on government assistance, or your only income is unemployment compensation. You need to be able to prove that paying the IRS minimum acceptable payment of $25 per month would cause economic hardship. The minimum payment necessary for an installment agreement would be your tax liability divided by 72 months or the number of months until the CSED whichever is less. 

If $25 is less than the maximum payment you can afford, you may be able to get a Partial Payment Installment Agreement (PPIA) at $25 per month. If you can't even make a $25 per month payment without economic hardship, you should be granted CNC status.

How Do You Prove Financial Hardship?

You will have to prove economic hardship to be granted currently not collectible status. You’ll submit this proof by filing IRS Form 433. You’ll use this form to give the IRS your financial information. There are a few variations of the Form 433 financial statement. When seeking uncollectible status, the IRS will most likely want the Form 433-F Collection Information Statement. The 433-F is the simplest version of 433 with only 2 pages. Be ready to prove the numbers on your 433 with documents such as bank statements, utility bills, etc.

The IRS will consider the information on the 433 to see if your income is enough to make installment agreement payments. The IRS will apply its own guidelines. The IRS uses national standard expenses to determine the minimal amount needed for food, clothing, and other necessary living expenses. The IRS also has guidelines for what your expenses for housing and utilities should be. These guidelines are based on your household size and where you live. These guidelines are specific to every county in the United States. 

The IRS also has transportation standards for public transportation costs or vehicle ownership costs (car payments) and operating costs (gas, insurance, maintenance) for each region of the country. There's a national standard for out-of-pocket healthcare expenses. The IRS considers other necessary monthly living expenses such as health insurance, life insurance, and childcare. If, after applying all these deductions to your monthly income, your total positive income isn't enough to make the minimum payments toward your tax liability, you should be granted uncollectible status.

Let’s Summarize…

CNC is a good option if you can't afford to pay anything toward your tax debts. While in non-collectible status, the IRS won't garnish your wages or levy on your bank account. It still may record a lien against your property. Your tax debt continues to grow since penalties and interest continue to accrue on your tax debt. If your financial situation improves, the IRS may remove you from non-collectible status and restart collections activities. For these reasons, for most taxpayers, CNC status is a temporary solution. The people who may use CNC as a permanent solution are those with conditions that will prevent their income from improving. Or, at least their income won't improve by the collection statute expiration date (CSED). 

Once your financial condition improves, you’ll want to get an installment agreement, a partial payment installment agreement, or an offer in compromise with the IRS. Unlike non-collectible status, these solutions will reduce or eliminate your tax liability. CNC status can only eliminate your tax liability when your financial condition doesn't improve by the CSED.