What does Currently Not Collectible status mean?
You agree with the IRS that you owe taxes, but you can’t pay due to your current financial situation. If the IRS agrees that you can’t afford to pay your taxes and also pay for your reasonable living expenses at the same time, it can place your account in Currently Not Collectible (CNC) (hardship) status.
CNC Status – How Long Does it Last?
CNC status could last up to 10 years. Generally, the IRS has 10 years to collect back taxes. After 10 years, the IRS is supposed to discharge the back taxes. The IRS will review your income situation once every two years. If your income has increased, the IRS may take you out of CNC status if it believes that you are better able to support yourself and pay back taxes.
Does CNC Status stop penalties and interest from accruing?
NO, CNC Status does not stop IRS penalties and interest. The IRS will continue to charge you penalties and interest. Additionally, the IRS may keep your tax refunds and apply them to your debt.
Will the IRS engage in collection activity while I’m in CNC status: No, while your account is in CNC status, the IRS will not generally engage in collection activity (for example, it won’t levy on your assets and income).
Will CNC Status remove the back taxes I owe? No, IRS Hardship will not remove the back taxes. You will still owe back taxes. Every year the IRS will mail you a reminder letter regarding taxes owed.
If I’m Currently in Not Collectible status, and incur new tax for a new tax year, will the new year be included?
No, every tax year is treated separately. You will have to start the process over again, and you might be in jeopardy of losing your CNC status all together.
For example, you could owe back taxes for 2010 – 2012, and new taxes for 2013. 2010-2012 are in IRS CNC status but 2013 is not. The IRS can pursue you for the new 2013 taxes but not 2010 – 2012 back taxes.
CNC Example 2: Joe Taxpayer owe taxes but can’t pay them. He can’t pay because he has just enough money to support himself and his family. The IRS will not take his property, his paycheck or wipe out his bank account while Joe is in CNC status.
Which option is best for me? CNC, Offer in compromise or installment agreement?
CNC Staus may not be your only option. Other programs that the IRS offers may be a better solutions to deal with your tax debt. For instance, Offer in Compromise may be more desirable option, than CNC Status. The IRS Settlement process can take more time, but after the agreement is finalized, you are done. You no longer owe back taxes. You can read more about Offer in Compromise here.
When should I consider CNC Status?
If you don’t qualify for Offer In Compromise, you may still qualify for CNC Status. You may have a large retirement or you may own land. You do not qualify for an IRS Settlement because of a large asset. You may qualify for IRS Hardship status.
Consider IRS Hardship if you are unable to pay your back taxes and you do not qualify for an IRS Settlement. You will still owe the back taxes but the IRS will not pursue you. You may stay in IRS Hardship status for the next 10 years. After 10 years, the IRS will remove the back taxes.
Because the IRS won’t suspend interest and penalty charges, even if it stops trying to collect the balance due, there maybe a better option that you qualify for such as an offer in compromise, that you should consider before deciding to be placed into CNC status.
Every tax case is different, but EVERY case has a solution.
We can help you figure out the best program to settle your tax debt, click below for a free consultation with a professional that can guide you to the correct solution.
The IRS will not forget about you or your tax debt, it will only increase the pressure to collect!
CNC Stats can be a life saving solution for your tax debt, but you may also qualify for more desirable programs to decrease your tax debt, like Offer In Compromise or penalty abatement.