How to Get Currently Not Collectible Status from the IRS

Each year, almost 30 million taxpayers file a return and owe taxes. Most people pay the taxes when they file – but about 4 million to 5 million can’t pay. About 3 million people set up payment plans with the IRS (called installment agreements) – but what about the others who can’t afford to pay?

The answer: Currently not collectible (CNC) status defers payment

CNC status allows people in financial hardship situations to defer paying their tax bill until their situation improves. For example, unemployed people often seek CNC status from the IRS.

Qualifying for CNC status means documenting your financial situation

Here’s the tricky part. If you need CNC status, you must prove to the IRS that you can’t afford to pay.

That means you’ll need to document your financial situation for the IRS.

• First, the IRS will look for any nest egg that you may have, like a savings account, to pay your taxes if you don’t need it to pay for necessary living expenses.
• If you don’t have any assets to pay the debt, the IRS will want you to document your average monthly income and necessary living expenses. The IRS is looking to see if you can pay with an installment agreement.
• The IRS may also ask you to file a financial statement (called a Form 433) and may even require you to prove your monthly income (with paystubs and bank deposits) and monthly living expenses (with receipts).

Here’s the catch: The IRS can set limits on your expenses. For example, if your car payment is $1,200 a month, the IRS will limit it to $497.

How to request CNC status

To get CNC status, you (or your tax professional) must contact the IRS. You can write or call the IRS, but it’s usually faster to interact by phone, because the IRS can tell you exactly what you’ll need to provide to prove your hardship.

Also, if you’re prepared with financial information, such as the Form 433 with documents to prove your income and expenses, you can usually fax them to the IRS during the call – and get an immediate preliminary decision.

Don’t ignore the issue

Many times, people who ignore their tax bill get a false sense of security that the IRS will ignore the issue, too. It’s true that the IRS can put taxpayers into CNC status if the IRS can’t locate them, but those taxpayers will be open to federal tax liens, bank levies, and wage garnishments.

The only way to make sure that the IRS doesn’t take these measures to collect when you can’t pay your taxes is to proactively contact the IRS to request CNC status.

Details you need to know about CNC status

The IRS will take any refunds in future years until you pay off the tax bill.

The IRS will usually file a federal tax lien if you owe more than $10,000.

CNC status may not be forever. After you get CNC status, the IRS will review your financial situation every year to see if you can afford to pay your taxes again. If your financial situation changes, the IRS may remove you from CNC status and ask for new terms. The IRS will analyze the income on your tax return or on information statements like Form W-2, 1099, etc., if you haven’t filed. If your income is more than the living expenses you provided when you originally got your CNC status, you’ll likely need to start making payments to the IRS unless you have added more necessary living expenses. The IRS sends a notice to you if it wants you to provide more current financial information about your CNC status.

If your situation stays the same, the IRS will likely “write off” your taxes, penalties, and interest owed after 10 years. This rule is called the collection statute of limitations. At the end of 10 years, the IRS can no longer collect unless you have extended the collection statute by some action (filed an offer in compromise, left the country, and several other reasons).

What to do next

If you’re experiencing a financial hardship, consider CNC status.

You may even want to consider an IRS offer in compromise if your circumstances allow you to settle your tax debt with the IRS.

If you’re not sure how you can pay your tax bill, consider consulting with a tax expert to understand your options. A qualified tax pro can help you decide which solution is best and work with the IRS to achieve it. Learn more about H&R Block’s Tax Audit & Notice Services. Or get help from a trusted IRS expert.