In many situations, a person may know he or she owes the IRS money. Yet, they also know they cannot pay those taxes. In some cases, it may be possible to have this IRS debt placed in Currently Not Collectible status.
Here is what CNC with the IRS means and how it may help you with your tax debt.
What Does IRS Currently Not Collectible (CNC) Status Mean?
Currently Not Collectible (CNC) is a term used to describe a temporary status when the IRS pauses collections on a taxpayer’s debt. In this case, the IRS determines that an individual is currently unable to pay any amount of their taxes due to severe financial hardship.
Based on this determination, the IRS stops the collections process until the taxpayer can pay. As a result, it may stop harassing calls or letters from coming in the mail.
What Financial Hardship Qualifies for IRS Currently Not Collectible?
The IRS makes the decision of whether to grant CNC, and they use very basic rules to do this. Some of the financial hardships that may qualify you for CNC status include the following:
You may only be collecting government assistance as your income. This could be Social Security income, disability income, public housing program funds, or SNAP funds. If this is the only income you have, the IRS may consider your tax situation for CNC.
For those who do not have any source of income or only have unemployment compensation as their income, it may be hard for the IRS to collect tax debt payments. Therefore, the IRS may assign CNC status in this situation as well.
There are other financial hardships that may also apply, but every situation is reviewed by the IRS. For example, if a person has a serious illness, the IRS may move to place their tax debt into Currently Not Collectible status.
Also, if the statute expiration date (CSED) — the date through which the IRS is allowed to collect unpaid taxes — is very close, they may also temporarily designate the debt as CNC.
How Do You Apply for or Request CNC Status from the IRS?
If you owe the IRS back taxes and want them to consider CNC in your situation, you must provide proof of your financial hardship. This may include completing a Collection Information Statement, which could be Form 433-F, Form 433-A, or Form 433-B, depending on your situation. You will need to document your income, assets, and expenses.
How Long Does Currently Not Collectible Status Last?
CNC is a temporary delay for tax debt collection by the IRS. The debt does not simply go away. Eventually, you will be required to pay it. The IRS will monitor an individual’s finances and their ability to pay back the debt.
Most of the time, CNC will last between 6 months and 2 years before a review occurs. It can last for up to 10 years.
Note that the IRS may still file a tax lien against your property during this time, and interest will continue to be added to what you already owe. It is important to remember that Currently Not Collectible status does not ever eliminate your back taxes, and you may have to pay them within a short few months after CNC expires.
How Often Will the IRS Reevaluate Your Financial Hardship Situation for CNC Status?
Every situation is different. However, the IRS will review the case at least one time every six months to 2 years to determine if you still have the required financial hardship that qualifies you for CNC.
When you no longer qualify, the IRS will remove CNC status and you’ll need to request tax relief, like a payment plan or Offer in Compromise, if you still can’t pay.
Does the IRS Stop Charging Interest and Penalties When You’re CNC?
The IRS continues to monitor your financial hardship on an ongoing basis. You may not have to make a payment during this time. However, penalties and interest can still be added to the tax debt you owe.
These extra tax charges can grow quickly over time. The longer you wait to pay the debt back, the higher your total back taxes will be. Interest will be added until all taxes, penalties, and interest associated with your account are paid in full.
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