IRS Currently Not Collectible Status

If paying your federal tax debt would prevent you from meeting basic living expenses, the IRS may temporarily delay most collection activity by placing the account in currently not collectible status (CNC). This does not forgive the debt or extend a filing or payment deadline. Eligibility depends on your actual finances and the applicable hardship rules.

This article explores the qualifications for currently not collectible status (CNC), the process of securing the status, and the benefits and disadvantages of the status with suggestions for alternative tax resolution.

Qualifying for Currently Not Collectible Status

The IRS will review the taxpayer’s current financial circumstances to determine whether he or she qualifies for not collectible status. The taxpayer’s income and expenses as they exist at the time of the request for not collectible status, not as of last year or next year, will determine eligibility. For example, if you had a high paying job last year, you will not be precluded from obtaining not collectible status if you meet the qualifications at the time of the request (e.g. you are out of work this year and don’t have access to assets).

For collection financial analysis, the IRS considers household income and resources against allowable necessary expenses. Resources can include wages, self-employment income, interest, net rent, retirement-account distributions, pensions, Social Security benefits, support payments and gifts. These are cash-flow resources for ability-to-pay analysis, not a statement that every listed receipt is taxable income.

The IRS uses necessary living expenses to assess whether collection would leave the taxpayer unable to meet basic needs. National standards cover categories such as food and clothing; local standards generally limit housing, utilities and transportation to the smaller of actual spending or the applicable allowance. Documented circumstances may justify expenses above a standard.

Potential expense categories include food, clothing, housing, utilities, transportation, health insurance, out-of-pocket health care, qualifying court-ordered payments, dependent care, current taxes and necessary secured-debt payments. Each category is subject to the relevant standards and conditions. Allowable life insurance generally means term coverage on the taxpayer, not investment insurance. Certain required education expenses can qualify. Necessary living costs paid by credit card are considered under the applicable expense categories; not every credit-card payment is separately allowed.

A taxpayer seeking hardship CNC must establish an inability to pay without compromising necessary living expenses, taking available assets into account. The following circumstances may indicate hardship, but none automatically establishes eligibility:

• Have expenses that exceed income;
• Have no income; or
• Only receive unemployment or social security income.

If the IRS determines that you can make payments without hardship, it may require an installment agreement instead of currently not collectible status. A partial payment installment agreement may be considered when payments would not fully satisfy the debt before the applicable collection period ends.

The IRS also examines assets and equity, including real property and retirement accounts, and whether funds can reasonably be obtained from them. Having an asset does not by itself resolve the hardship analysis; explain and document any inability to borrow against or use it without causing hardship.

The Process of Requesting Not Collectible Status

The IRS may request Form 433-F, Form 433-A for wage earners and self-employed individuals, or Form 433-B for businesses, along with supporting information about income, living expenses, bank accounts and other assets. Supply the form and documentation appropriate to your case.

If a Revenue Officer handles your case, contact that officer about the request. Otherwise, call the number on your IRS notice or the IRS assistance number and follow the instructions for securely submitting financial records.

The timing of an IRS decision depends on the case and required review. Confirm the status with the IRS rather than relying on a fixed approval timeline. In some cases, the Revenue Officer or Collections Agent may require additional information and documentation to evaluate the request which will extend the timeline.

Benefits and Disadvantages of Currently Not Collectible Status

There are several advantages of securing not collectible status with the IRS. Once approved for CNC:

• Most enforced collection is temporarily suspended, including wage levies, while the account remains in hardship CNC;
• Bank levy collection is generally suspended for the hardship account; confirm the treatment of any existing levy with the IRS;
• Hardship protection can also affect levies on pension or Social Security income; the IRS must evaluate the taxpayer’s actual ability to meet basic needs;
• Unfiled returns do not necessarily prevent a verified hardship determination, but filing obligations continue and the IRS may need returns to verify the financial information;
• CNC alone generally does not suspend the collection period, which is ordinarily ten years from assessment. Other events can suspend or extend that period, so verify the applicable collection expiration date;

Notwithstanding the benefits, there are some notable disadvantages that may give taxpayers pause before seeking not collectible status. These include the following:

• The tax debt doesn’t get eliminated or reduced. Rather the IRS merely suspends collection activity temporarily;
• Interest and penalties will continue to accrue while on not collectible status;
• The IRS may file a Notice of Federal Tax Lien to protect its claim to property. A lien can affect a sale or refinancing; proceeds may have to be applied to the debt. Release, discharge and subordination rules can affect the tax lien, so do not assume CNC removes it;
• CNC is temporary. The IRS may periodically review the taxpayer’s finances and resume collection if the ability to pay improves. There is no universal reapplication interval;
• The IRS will continue to hold your refunds and apply them toward the outstanding tax debt while you are on not collectible status; and
• You may continue to receive IRS balance-due notices.

The eligibility requirements and competing benefits and disadvantages of the IRS’ currently not collectible status must be considered in the context of each taxpayer’s unique situation. Some taxpayers may qualify for CNC based on their monthly household disposable income but not based on the equity in their real estate or retirement accounts. Other taxpayers may qualify for CNC but not be comfortable with the IRS filing a tax lien against their property, especially when the tax debt and corresponding tax lien will not expire for several years.

Do You Need a Tax Attorney?

A tax attorney can help you determine whether you qualify for currently not collectible status and review the benefits and disadvantages as they relate to your unique case. When your monthly household disposable income is low but not low enough to qualify for CNC, your legal tax professional can also suggest alternate methods of resolution which may include a settlement with the IRS via offer in compromise or the establishment of a partial pay installment agreement.

A tax attorney can assist with the following potential responses, depending on eligibility and the facts of the case:

• Establishing currently not collectible status;
• In the alternative, establishing partial pay installment arrangement;
• In the alternative, filing an offer in compromise; and
• IRS Appeals such as Collection Due Process Appeal.

To discuss your tax matter with Segal, Cohen & Landis (SCL), contact the firm and provide the relevant notices, facts and deadlines. Confirm consultation terms, attorney availability, fees and the proposed scope of representation. No particular resolution is guaranteed.