As a taxpayer, you have certain rights when dealing with the IRS. One of those rights is the ability to request a Currently Not Collectible status if you cannot pay your taxes. This status means that the IRS will not take any collection action against you for some time, typically one year.
This tax debt resolution is appropriate for a taxpayer who cannot currently pay anything toward his or her tax liability. You can qualify for this status if you have no income or if your gross income minus IRS allowable expenses for the county you live in equals zero income remaining.
We have many clients that have been placed into CNC status. Once in CNC, all collection enforcement activity ceases for one year, but penalties and interest continue to accrue – meaning your debt will continue to grow.
For those who qualify, CNC gives them time to concentrate on regaining their financial footing and gives them the peace of mind they deserve.
Seattle Legal Services can help you do just that. We offer legal services to people who need them and are here to help you get back on your feet. Contact us today for a consultation, and let us show you how we can help.
What Is Currently Not Collectible Status?
Currently not collectible status means that the IRS has determined that you are unable to make tax payments at this time. This does not mean they will garnish your wages or levy your bank accounts, and it also does not require that you set up an installment agreement or offer in compromise. Instead, they will suspend collection activity for one year while you get your financial affairs in order.
This status is available to those who can prove that they do not have the ability to make any payments toward their tax liability at this time. This usually means that you either have no income, or your gross income after allowable expenses is zero. You will need to provide financial documentation to the IRS in order to prove your financial situation, and they may request updated information on a yearly basis.
If you are able to make any payments towards your tax liability, the IRS may require that you do so, but they will not take aggressive collection action against you. This status is typically granted for one year at a time but maybe extended if you can still prove that you are unable to make payments.
This gives you time to get back on track financially without the immediate threat of collections activity. However, this does not mean that your tax debt disappears. You will still owe the past-due tax, and the balance will continue to grow with interest and late penalties.
The Benefits of Currently Not Collectible Status
There are several benefits to having your tax debt placed into currently not collectible status.
- All collection enforcement activity will cease for one year. This means the IRS cannot garnish your wages, levy your bank account, or take any other collection action against you.
- You will not be required to set up an installment agreement or offer in compromise.
- You will not be required to make any payments toward your tax liability for one year.
- You will have time to get your financial affairs in order without the immediate threat of collections activity.
- This status can give you the peace of mind you need to get back on your feet.
Requirements for Currently-Not-Collectible Status
The status of “currently not collectible” is only given to those who have paid their taxes and can show “significant financial hardship.” The IRS says that if you’re in a position where paying anything toward your tax debt would result in serious deprivation, then this shouldn’t be considered anymore because it’s just enough for them not to get their money back.
They need some more things before they qualify with the go-green button, though – living without making expenditures isn’t unpleasant or inconvenient when other options are available, like cutting down spending, borrowing money, or selling assets. So the IRS will also look at whether or not you have any other payment options before considering your currently not collectible status.
The first step is proving to the IRS that you are currently unable to make any payments toward your tax liability. You will need to provide documentation of your total positive income and allowable expenses to do this. This may include:
- The 10-year statute of limitations the IRS has to collect your tax debt is coming to an end soon.
- After shelling out for essentials each month, you have almost ZERO money left.
- You earn less than $84,000/year.
- You must be unemployed and have no other source of income.
- You’re following IRS rules when it comes to your basic living expenses.
- You receive your only income from Social Security, unemployment, or government welfare benefits.
If you meet the IRS’s criteria, it will issue a “closing code” to your account when it recognizes your currently not-collectible status. The code informs the IRS when to check your file for further information. It’s linked to annual revenues. The length of time you may remain in CNC status is directly linked to your revenue and how quickly your financial condition improves.
For CNC status, the IRS considers several sorts of income, including:
- Schedule C net profits
- Schedule F net profits
- Other income
The IRS will also review your expenses to decide whether or not you qualify for currently-not-collectible status. This may include:
- Housing and utilities
- Out-of-pocket health care costs
Important: If you had to pay $5,000 a month in rent, for example. You’re single and don’t have any kids. The IRS recognizes that renting a one-bedroom apartment in the city where you live costs around $1,500 on average. It will allow you only $1,500 in rent expenses regardless of how much you spend. (example for illustrative purposes)
How to Apply for Currently Not Collectible Status
The only way to qualify for currently-not-collectible status is by contacting the IRS directly or through a tax professional. You’ll need documentary evidence of your monthly income and expenses when doing so.
If the IRS does grant you currently-not-collectible status, it will send you a letter confirming your status and outlining what you need to do to maintain it. The letter will also include information on the statute of limitations and when it expires.
It’s important to note that you are still responsible for your tax debt even if the IRS gives you currently-not-collectible status. The IRS can begin collections at any time if your financial situation improves.
You may still be able to make smaller tax payments through a partial payment installment agreement. You can also try to negotiate an offer in a compromise with the IRS.
Whatever the situation happened to you and you want the IRS to grant you the status of currently not collectible, contact Seattle Legal Services.
We’ll help you to stop the collections and put an end to the stress.
Results We Achieved for My Client
I have uploaded a recent LTR 4624C from the IRS that confirms that I successfully placed my client into Currently Not Collectible Status. This client’s case has been closed for 1-2 years. This status gives my client the time they need to get back on their feet after losing their job due to COVID. If you struggle to make ends meet, let me see if I can qualify you for Currently Not Collectible Status with the IRS.
We don’t just discuss resolving cases; We get results for our clients daily.
Frequently Asked Questions on Currently Not Collectible Status
My account is in CNC, but I still got a letter from the IRS. Why?
Each year while you’re in CNC, the IRS will send you a letter reminding you of your debt. Be sure to read it carefully; if it’s only a reminder, it’ll say that you don’t need to take any action.
How long does IRS uncollectible status last?
The IRS has a decade to collect your owe taxes from the date they were initially assessed, but this period may be suspended under certain conditions, thus giving the IRS more time to collect the tax.