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Understanding Currently Not Collectible status in taxes

On Behalf of | Apr 4, 2023 | Federal And State Tax Collections |

In the realm of U.S. taxation, individuals facing financial difficulties may encounter a term known as “Currently Not Collectible.”

This status, assigned by the Internal Revenue Service, offers temporary relief to taxpayers experiencing great financial hardship.

What does Currently Not Collectible mean?

Currently Not Collectible is a term the IRS uses for taxpayers who owe taxes but are unable to make payments due to their current financial situation. The IRS understands that demanding payment in such cases would create undue hardship for the taxpayer, leaving the person unable to meet basic living expenses.

While CNC status does not erase the taxpayer’s debt, it temporarily suspends the IRS’s collection activities, such as wage garnishments, bank levies or property seizures. It is important to note that interest and penalties on the unpaid tax debt continue to build during this period. The IRS periodically reviews the taxpayer’s financial status to determine if the situation has improved and if the person can resume making payments.

How do taxpayers qualify for Currently Not Collectible status?

For consideration of CNC status, a taxpayer must provide the IRS with comprehensive financial information. This may include income, expenses, and assets, by submitting Form 433-A (for individuals) or Form 433-B (for businesses). The IRS then evaluates the submitted data and compares it with the National Standards for Allowable Living Expenses to determine if the taxpayer qualifies for CNC.

While the IRS acknowledges that each taxpayer’s circumstances are unique, receiving CNC status requires the following:

  1. The taxpayer has no assets for easy liquidation to settle the tax debt
  2. The taxpayer’s income is not enough to cover necessary living expenses and make tax payments
  3. The taxpayer would suffer severe financial hardship resulting from collection activities

Currently Not Collectible status may provide some temporary relief to some taxpayers. It may allow for time to recover without the immediate pressure of tax debt collections. However, CNC is not a permanent solution, and interest and penalties still build on the outstanding debt. To avoid more issues, taxpayers should explore other options and seek experienced help to navigate the complex world of taxation.