If you are financially unable to make tax payments, the IRS may qualify your account as “currently not collectible”. This means you can defer making payments to the IRS until you’re financially able to pay.
What Does Currently Not Collectible Status Imply?
Once the IRS determines your account is currently not collectible, that designation means they won’t garnish your wages or levy your bank accounts, and they won’t require that you set up an installment agreement (for the time being).
You must have little or no money left over after paying essential living expenses each month, such as rent, utilities, and groceries, to qualify for this relief.
How Currently Not Collectible Status Works
Currently not collectible status can provide you with some time to get back on your feet and figure out a way to pay off the IRS without the immediate threat of collections activity. This is very important to remember: your tax debt does not go away! You’ll still owe the past-due tax, and the balance will continue to accumulate interest and late penalties – so it still behooves you to take care of the matter.
The IRS will hold onto any tax refunds you might be entitled to in future years until your balance is paid off. This process is referred to as a “refund offset.” The IRS might also file a Notice of Federal Tax Lien against your property, and this will show up on your credit report. It will put creditors on notice that you owe an outstanding balance to the IRS.
IRS Tax Freedom can help you evaluate whether you’re a good candidate for currently not collectible status and can suggest other options (if needed) for dealing with your tax debt. We’ll calculate the monthly payments you’d be required to make on an installment agreement, the likely settlement amount you’d owe if you were to ask for an offer in compromise and review your eligibility for CNC status.
Installment agreements, offers in compromise, and CNC status all use roughly the same financial data as guidelines. We can cut through the clutter ahead of time and determine what your real financial situation is upfront, so we can know how to frame our seeking of currently not collectible status for you.
Requirements for Currently Not Collectible Status
To receive the status of currently not collectible, paying your taxes must cause you significant hardship. According to the IRS, “significant hardship” means that paying anything toward your tax debt at this particular point in time would result in “serious privation.” You’d literally be doing without some of the necessities of life if you were to give your money to the IRS instead. It doesn’t mean that living without making some expenditures would be unpleasant or inconvenient.
To decide whether you qualify, the IRS will see whether you meet one or more of the following requirements:
- There are only a few more years left on the 10-year statute of limitations the IRS has to collect your tax debt.
- You make less than $84,000 a year.
- Your living expenses fall within IRS guidelines.
- You have little or no money left at the end of the month after paying your basic living expenses.
- Your only income is from Social Security benefits, welfare benefits, or unemployment benefits.
- You’re unemployed and have no other source of income.
If you qualify, the IRS places a “closing code” on a taxpayer’s account when it approves them for currently not collectible status. The code tells the IRS when to pull that taxpayer’s file for review to determine if their circumstances have changed. They base their review on your annual income at that time.
The amount of time you can remain in CNC status is directly related to how much income you earn and how quickly your income situation improves.
An Example
Bob is 65 years old and he has an eight-year-old tax debt. He makes $30,000 a year. He has just enough money to pay for rent, utilities, groceries, and his monthly bus pass after taxes are withheld from his wages.
The IRS reviews his financial situation and determines that he qualifies for CNC status. The agent working the case puts in a closing code for $36,000. The IRS will follow up with Bob to see whether he can afford to start making monthly payments on an installment agreement when and if Bob files a future tax return showing “total positive income” of $36,000 or more.
Income Requirements
The IRS considers several types of income for CNC status, including:
- Wages
- Interest
- Dividends
- Schedule C net profits
- Schedule F net profits
- Distributions
- Other income
Earned income from holding down a regular job or running a small business as a sole proprietor isn’t indicative of your total positive income. Any unearned income you might have counts, too.
Expense Requirements
Allowable living expenses are referred to as the “collection financial standards.” There are four sets of standard living expense data:
- Food, clothing, and other household-type expenses
- Out-of-pocket health care expenses
- Housing and utilities
- Transportation
As another example, suppose Jan pays $6,000 a month in rent. She is single and has no dependents. The IRS knows that it typically costs about $2,000 to rent a one-bedroom apartment in the city where Jan lives. It will only allow her $2,000 in rent expenses regardless of how much she actually spends.
If the IRS determines that one of your main expenses is extravagant, regardless of whether you consider it reasonable or not, they won’t make allowances for it. In Jan’s case, they would not grant her CNC status, and she’d have to make her own arrangements to accommodate $2,000 in rent and pay off her tax debt. The IRS doesn’t care, they just want their money. That’s why you need IRS Tax Freedom in your court, protecting you and your interests.
How to Request Currently Not Collectible Status
To qualify for currently not collectible status, you’ll need to either contact the IRS directly or hire a tax professional, like IRS Tax Freedom, to contact the agency on your behalf. Yes, you can do it on your own, but do you know their language? And more importantly – what not to say.
That’s very important because they won’t unsee or unhear anything you tell or show them. We’re experts in handling these matters directly with the IRS so you don’t have to.
You’ll need to provide information about your income and expenses, and you may need to provide documentation of these as well.
If you don’t qualify for currently not collectible status, you may qualify for an installment agreement to make your tax payments more manageable. IRS Tax Freedom can tell you upfront what your best course of action is, and we’ll make it happen.
Don’t ignore your tax debt; the IRS can garnish your wages and bank account. It’s best to be proactive in dealing with unpaid taxes. That’s what we’re here for. Even if we can arrange currently not collectible status for you, we’ll also urge you to move forward with solving your actual tax debt matter, because, if left alone, it will definitely get worse!
Key Takeaways
- Currently not collectible is a status the IRS gives to those who can’t afford to make payments on their tax debt.
- To qualify, your tax payments must cause significant hardship.
- This status isn’t permanent; it will be reviewed periodically, and if your situation changes, you may be required to start payments.
If you think you might qualify for CNC, you first have to prove it. The IRS won’t take your word for it. We can help make that case and get you qualified. And if that’s not your best path forward, we’ll tell you up front, and lay out what really will work for you! Let us take care of all that, and you can just get back to living!