- Personal Finance
Currently Not Collectible Status
Currently not collectible, or CNC, status is one of the best ways to get the IRS off your back if you are in serious financial straits. This is a status that essentially says you are unable to pay your taxes either due to undue hardship or that it would cause undue hardship for you to do so. It is most often granted if you are insolvent and/or indigent.
What is CNC?
Being placed into CNC status means that the IRS has decided that they can’t currently collect the taxes you owe. It defers all collection activity until such time as your financial circumstances improve. The Revenue Officer assigned to your case will remove it from the collections inventory. Penalties and interest will continue to accrue, but you will not be hounded for payment while in CNC. Generally speaking, the IRS will review your case roughly once a year to see if it should be removed from the currently not collectible roster.
How Do You Qualify for CNC Status?
In order to qualify for Currently Not Collectible Status, you must meet the criteria for undue hardship. The most common scenario under which CNC is approved is when a taxpayer has no or negligible assets and no income beyond what is needed to survive. The IRS may also place you in CNC if your business has entered bankruptcy and has no remaining assets. A special circumstance in which the CNC status will be granted even if you have assets is if you are a military member serving overseas in a combat zone.
Before granting you CNC status, the IRS will have to review your case and determine that you do in fact qualify. You will need to submit a financial statement that is similar to a loan application in which you list all of your income and assets. You will also have to submit documentation of your bills and income for review. The IRS will then determine if you qualify. Keep in mind that merely living outside of your means won’t be enough to accepted into the CNC status; you must be in true financial trouble.
What Happens After I Qualify?
The IRS will cease all collections activity while you remain in CNC status. They will conduct a financial review of your account once a year. Your tax returns will be checked to make certain your income has not exceeded a predetermined threshold. They will also either contact you by phone or send you a form in the mail to verify that your information has not changed. If your financial situation has improved, the case will be reopened and collection activity will be resumed.
How Long Can I Stay in CNC Status?
Indefinitely, or until the statute of limitations for the taxes in question expires. The IRS has 10 years to collect on delinquent taxes from the date they are assessed. When that 10 years runs out, your liability ends. Keep in mind that you can’t make any significant amount of money or acquire any assets in your name during the time you are in CNC status. Many people still manage to live quite comfortably during this time, however.
What if I Expect My Financial Situation to Improve?
If you expect your financial situation to improve dramatically before the end of the collection period, then you should consider other options to resolve your tax situation, such as an Offer in Compromise (OIC) or Installment Agreement (IA).
The Bottom Line
There are a number of ways to resolve your delinquent tax issues. You don’t have to suffer through the humiliation of wage garnishments, tax liens, and bank levies. You can resolve your tax issues in better ways. But don’t put it off…the IRS isn’t known for their mercy.