Currently Not Collectible (CNC) is the last stop on the tax frontier. It literally means you have no ability to pay your tax debts – at all. The result is that the IRS stops all collection efforts, all levies, and all garnishments.
If you feel you’ve reached a point where you can’t afford to pay your current or back taxes now or ever, here’s what you need to know about CNC.
Currently Not Collectible Known as Hardship Status
A Currently Not Collectible status is also called a hardship status or status 53 (after the IRS tax code). It is used to describe a taxpayer who can’t pay their outstanding tax liability. The IRS assigns a hardship status to the account
To reach this status you must:
- Provide the IRS with financial information about income and expenses on Form 433-A. Make sure you complete all the information accurately to the best of your knowledge.
- Supply supporting documentation of income and “reasonable and necessary living expenses” for at least the prior three months (including pay stubs, credit card statements, utility bills, food receipts, and your mortgage statement).
- List any assets you could liquidate or sell to make a lump-sum payment. Include stocks, bonds, bank accounts, and property.
To determine the collectability of a tax liability the IRS will consider:
- Your current financial condition
- Whether you are involved in a bankruptcy proceeding
- Your income history as well as your future earnings potential
- The likelihood that your equity or assets will increase in the future (such as the equity on your home, if it is currently unavailable to pay your tax debt)
Before you apply for CNC status, talk with a tax professional to ensure all your paperwork is in order and that choosing a Currently Not Collectible status is right for you.
What CNC Status Means to You
Filing for Currently Not Collectible status means you are declaring you have no way of ever meeting your tax obligation. While this status is generally only temporary and suspends any action against you by the IRS, it does not forgive the tax debt.
The IRS may still file a tax lien on your future assets, and interest and late payment penalties on your tax debt typically continue to accrue. If your financial situation should improve, the IRS will be right there knocking at your front door.
The only thing that might prevent the IRS from ever collecting on your tax debt is the statute of limitations (or the Collection Statute Expiration Date). The statute of limitations is generally 10 years after the IRS assesses a tax liability.
However, from the time the action begins until that 10-year period ends, the IRS will:
- Continue to monitor your financial situation and if you can pay even a small amount, you will need to do so (this will extend the statute of limitations)
- Place a lien on your Currently Not Collectible account (this is standard procedure)
- Continue assessing interest and penalties on your outstanding tax balance
Currently Not Collectible is difficult to obtain and will have a long-term impact on your financial well-being and credit record. Before you choose this option, be sure to fully investigate all other avenues available for tax relief and speak to an expert – enrolled agent, tax attorney, tax accountant, or tax advocate – to ensure you understand your choice and have completed your paperwork correctly.