If you’re one of those taxpayers who hasn’t filed a return, you probably understand by now the reason why there is a tax debt and exactly why it cannot simply be settled in a day. Maybe you’re worried about facing penalties, interest, or a letter from the IRS.
You’re working hard to address the situation because you know that not taking action could lead to the IRS taking steps like wage garnishments or liens, which is definitely something you want to avoid.
The IRS isn’t as strict as you might think and thus has plans for those who cannot simply make a full payment. One of these is the Currently Not Collectible (CNC) status, which temporarily pauses collection efforts if you are in the middle of serious financial hardship. However, the IRS can resume collection when your financial situation improves.
In this guide, we’ll cover what CNC status is, how to apply for IRS non collectible status, and how you can manage your IRS debt with less stress.
What Happens if You Can’t Pay Off Debt?
If you can’t pay your IRS debt, the agency can take swift and severe actions to recover what’s owed. Here are six critical steps the IRS may initiate:
- Immediate Bank Account Freezes
The IRS can freeze your bank account through a levy, leaving you unable to access your funds. This can create a chain of financial distress. - Wage Garnishment with No Limits
Unlike other creditors, the IRS can garnish your wages aggressively, taking a significant portion of your paycheck. This can leave you struggling to cover basic living expenses. - Forced Sale of Assets
The IRS has the authority to seize and sell your assets, including your home, vehicles, or other valuables, to recover the debt. This step is more common if the debt remains unresolved for an extended period. - Revocation of Passports
For taxpayers with significant debt (typically $51,000 or more), the IRS can request the revoke or deny the renewal of your passport, effectively limiting your ability to travel internationally. - Loss of Business Operations
If you’re a business owner, the IRS can levy business assets, including accounts receivable or equipment, potentially forcing you to shut down operations until the debt is addressed. - Public Filing of Federal Tax Liens
The IRS may file a public Notice of Federal Tax Lien against you, which damages your credit, alerts creditors to your unpaid debt, and hinders your ability to secure loans or refinance property.
If you are here, it means paying off your tax debt has already started to feel overwhelming, but don’t panic. With the right steps and guidance, you can find relief and prevent the situation from escalating.
We’re here to help you resolve your tax issues first, ensuring everything is in order, and then we’ll focus on preparing your future returns with confidence. Our tax preparation services will prevent tax debt from accumulating any further and safeguard your future.
An Overview of CNC Status
Let’s look at some of the very common questions related to a CNC Status.
What is CNC Status?
Currently Non-Collectible (CNC) status means that the IRS acknowledges your financial hardship and thus stops collecting for tax debt, at least for a while. When you apply for CNC status, the IRS will carefully assess your financial situation to see if you’re currently able to pay.
What Happens When the IRS Puts You in CNC Status?
If the IRS has notified you that your account is now in CNC hardship status, it means:
- Certain collection actions will be paused until your financial situation improves.
- You can still choose to make voluntary payments.
- The IRS shouldn’t seize your assets or income.
- They may file a Notice of Federal Tax Lien.
- The IRS may check in periodically to see if your ability to pay has changed.
- Once the IRS determines you’re able to pay, they will notify you, and you’ll need to work with them to set up payment options.
Eligibility Requirements for CNC Status
Now that you know what CNC status is, you might wonder how you can qualify for Currently Not Collectible status. The IRS doesn’t just hand out CNC status to anyone. You need to demonstrate that paying your tax debt would create a significant financial burden.
Here are the main criteria you need to meet:
- Income: The IRS will look at what you earn monthly and see if it covers your basic living expenses. If your income just isn’t enough to cover necessities like food, housing, and utility bills, you might be in the running for CNC status.
- Expenses: The IRS examines your expenses closely. They consider expenses that are necessary and reasonable. This includes things like housing, utilities, groceries, and transportation. They make sure you’re not overspending on non-essential items.
- Total Tax Liability: Finally, the IRS takes stock of your entire tax liability. If your debt is too massive compared to your income and assets, this might also strengthen your case.
Also Read → IRS Back Taxes Help
How to Apply for Currently Not Collectible Status?
If you’re looking to get your debt classified as “Currently Not Collectible” by the IRS, here’s a step-by-step guide to help you through the process.
- Gather Financial Information
Collect all necessary financial documents, including recent bank statements, pay stubs, proof of monthly expenses, and asset records. This includes rent or mortgage, utilities, groceries, business expenses, and other essential costs. - Contact the IRS
Call the IRS to initiate the CNC status application. For individual tax matters, contact 1-800-829-1040, and for business tax matters, call 1-800-829-4933. Explain your financial hardship and request CNC status. - Fill Out the Appropriate IRS Forms
Complete Form 433-F for individuals or Form 433-B for businesses. These forms detail your financial situation, including income, expenses, and assets. - Submit Your Tax Returns
Ensure that all outstanding tax returns are filed. The IRS generally won’t approve CNC status if you have unfiled returns. - Submit Supporting Documents
Provide all the required documents with your completed forms to the IRS. This may include copies of your tax returns, bank statements, and proof of monthly living expenses. - Wait for the IRS Decision
After submission, the IRS will review your financial situation and determine if CNC status is appropriate. They may contact you for more information before making a decision.
Pro Tip: In some cases, the IRS might ask for Form 433-A, typically for larger debts over $50,000 and if you’re working with a revenue officer.
Also Read About → Expert Tax Lien
How Long Does CNC Status Last?
CNC status isn’t designed to last forever, but there’s no fixed expiration date other than the IRS’s ten-year statute of limitations. You can remain in CNC status as long as your financial situation justifies it, meaning you still cannot afford to pay your tax debt.
The IRS doesn’t forget about your debt. They’ll periodically review your account to check if your financial situation has improved. This review is based on your tax returns, so it’s essential to continue filing your returns and making federal tax deposits on time.
Failing to do so, or filing misleading information, could result in the IRS resuming collections.
Common Mistakes to Avoid When Applying for CNC Status
- Incomplete Financial Documentation
Submit all required records, including bank statements and proof of expenses, to avoid delays. - Underreporting Income and Assets
Disclose all sources of income and assets accurately to maintain transparency with the IRS. - Not Filing Outstanding Tax Returns
Ensure all past-due returns are filed before applying, as this is typically required for CNC approval. - Neglecting to Update Financial Changes
Inform the IRS of any financial improvements to prevent a review of your CNC status.
What if I still can’t pay in the future?
Finding yourself unable to pay off IRS debt can feel like being stuck in a maze with no way out. Luckily, if Currently Not Collectible (CNC) status isn’t an option, there are other paths you can explore. Each has its own set of rules and perks, so it’s important to find the one that fits your situation best.
Installment Agreements
Installment Agreement breaks down your debt into smaller, more manageable chunks. The IRS offers several types of installment plans, depending on how much you owe and your financial situation.
- Simplified Payment Plan: If you owe $50,000 or less and can pay it off in 72 months or less, you might qualify for this easy setup through the IRS website.
- Long-Term Agreements: For larger debts, you can negotiate a more extended plan, but it involves more paperwork and possibly more scrutiny of your finances.
Setting up an installment agreement can help you avoid the penalties of unpaid taxes without the need for CNC status.
Offer in Compromise
The Offer in Compromise (OIC) program is like negotiating a discount on what you owe. It’s a chance to settle your tax debts for less than the full amount.
- Eligibility: You have to prove that paying the full amount would cause financial hardship. The IRS considers your income, expenses, and asset equity.
- Application Process: It involves detailed forms and a $205 fee, which can be waived for qualifying low-income taxpayers.
The OIC program can be a lifeline if your finances are tight, offering a fresh start while keeping the IRS at bay.
Also Read → How to Apply for IRS Installment Agreement?
Conclusion
Facing IRS debt without the means to pay can feel overwhelming, but understanding the Currently Not Collectible (CNC) status opens up a pathway to relief. This status offers a reprieve, allowing you the space to breathe while getting your financial situation in order.
Reach out to an International Tax Advisor who can guide you through the process and help explore all viable options for your circumstances. Going alone can be tricky, so having the right advice is just what you need.
Remember, solutions are within reach. Taking action now sets you up for a more secure financial future. Do you have questions to share? Drop them below—your question might be exactly what someone else needs to solve their problem!
