IRS CNC (Currently Not Collectible) Status
The fastest and simplest way to resolve your tax issues. The IRS/State will classify you as uncollectible, meaning no garnishments, bank levies, or payment plans.
Settle your unpaid taxes once and for all.
Do you need the IRS to back off for a while? You can make such a request! CNC (Currently Not Collectible) status is issued to taxpayers who are unable to repay their tax liabilities. Once your account is designated as CNC, the IRS halts its collection process. This means no more threatening levies, harassing calls, or intimidating IRS letters. If you need relief from back taxes, have received an Intent to Levy notice, or are facing wage garnishment, it’s worth your time to keep reading!
Who Is Eligible for Currently Not Collectible Status?
According to the IRS (as outlined in Part 5, Chapter 6, Section 1 of the Internal Revenue Manual), a taxpayer may qualify for Currently Not Collectible status if they can demonstrate financial hardship. Specifically, applicants must show that they have very little money left to live on after their tax debts are accounted for. These taxpayers must explain why they are experiencing extreme economic disadvantage rather than a temporary setback.
To determine eligibility, an IRS officer will evaluate the taxpayer’s Total Positive Income (TPI). This includes positive values shown in the income section of a tax return, which encompasses:
- Earnings
- Dividends
- Interest
- Schedule F income (from commercial farming ventures)
- Schedule C income (profits from self-employment)
- Property income
- Other sources of investment or income
The IRS will calculate your income and compare it with both local and national standard living expenses, categorized into four groups. These IRS standards allow you to deduct the following from your Total Positive Income (TPI):
National standards cover various monthly living expenses such as food, household items, services, apparel, personal care products, and miscellaneous costs. The IRS allows deductions of $639 for individuals and up to $1,650 for a family of four.
National standards also include out-of-pocket healthcare expenses such as prescription medications, medical services, and essential living supplies like eyeglasses ($117 for individuals 65 and older; $49 for those under 65).
Local standards encompass utility and housing expenses, including rent/mortgage, garbage collection, heating, gas, and property taxes. These deductible expenses vary by county, based on data from the American Community Survey, BLS, and the US Census Bureau.
Local standards cover transportation expenses, including lease payments or monthly loan costs (ownership expenses) based on national figures. Other monthly operating costs vary by Metropolitan Statistical Area and Census Region. Deductions include $189 for public transportation and $485 for single-vehicle ownership expenses, or $970 for two vehicles. Standard operating expenses vary by region.
What occurs when the IRS assigns an account the status of 'Currently Not Collectible'?
Understanding Currently Not Collectible (CNC) Status
Once a taxpayer is granted Currently Not Collectible (CNC) status by the IRS, any tax levies imposed will cease, and enforcement activities will be temporarily halted. During this period, the IRS refrains from aggressive collection attempts, including wage garnishments, repeated calls and letters, impacts to credit scores, and deferrals of debt payments. However, it’s important to note that CNC status does not eliminate the debt; it simply provides temporary relief to help taxpayers manage financial challenges.
Obligations and Considerations
While under CNC status, taxpayers are still required to file their income tax returns annually. Any tax refunds owed to the taxpayer will be applied to outstanding debts. The IRS periodically reviews the taxpayer’s financial situation to assess if there has been an increase in earnings that would allow for repayment of the owed taxes. If there is a significant change in financial circumstances, the IRS may revoke the CNC status and require revised financial statements for repayment consideration.
Accrual of Penalties and Interest
It’s crucial to understand that penalties and interest continue to accrue on unpaid taxes during CNC status. While CNC provides short-term financial breathing room, taxpayers are ultimately responsible for fulfilling their tax obligations.
Duration and Reassessment
The duration of CNC status varies case by case, typically with a closing code indicating when the IRS will reassess the taxpayer’s ability to repay.
Applying for CNC Status
To apply for CNC status, taxpayers must submit a detailed financial report to the IRS, including living expenses, income, and asset information. This information is crucial for completing Form 433, the IRS-mandated financial statement. Documentation such as bank statements and medical expense receipts for the last three months should accompany the application.
Seeking Professional Assistance
Seeking assistance from tax professionals can increase the likelihood of obtaining CNC status. Experienced specialists can advocate on behalf of the taxpayer, providing comprehensive support throughout the application process and facilitating communication with the IRS. For personalized guidance on resolving tax issues, contact our team today.