If you can’t pay a tax debt because of a financial hardship, you can request currently not collectible status. Currently not collectible status puts IRS collections on pause. Common reasons for requesting currently not collectible status include job loss, medical conditions, or disability.
What does currently not collectible status do?
If the IRS agrees that you can’t pay for both your basic living expenses and your tax debt, it may agree to place your account in currently not collectible status. This will typically stop the IRS from taking additional collection steps such as sending more threatening letters or issuing a letter.
Currently not collectible status does not stop interest and penalties from accruing. You will also still owe your original tax liability unless you can remain in not collectible status permanently.
Who is eligible for currently not collectible status?
To be eligible for currently not collectible status, you must be able to demonstrate a serious financial hardship. This means that you don’t have enough income left over after paying for bare-bones living expenses to pay your tax debt. The IRS may also require you to file any past due tax returns if you haven’t done so.
To learn more about how the IRS decides if you qualify, you can read their collecting process manual (written for IRS employees and tax professionals).
Do you have to sell your home or other assets to get currently not collectible status?
The IRS considers both your income and assets when determining your ability to pay. There are some exceptions for essential personal property such as clothing, transportation, and your home.
Talk to a tax professional if you’re in this situation. The rules are complex, and the IRS often interprets them aggressively. Enrolled agents and tax attorneys who are familiar with these rules are frequently able to push back and get a resolution that works better for your finances.
How does currently not collectible status work for married couples?
The IRS will look at the following things when a married person has a tax debt.
- Income of both spouses
- Assets of the responsible spouse(s)
- Share of household expenses
- Individual expenses of the responsible spouse(s)
If the tax debt is an individual liability, applying for or receiving currently not collectible status does not make the other spouse liable for the tax debt. However, the IRS will look at your total financial situation, including household income and expenses, when determining whether you qualify for CNC status.
When should you use currently not collectible status?
Currently not collectible status generally works best when you have a temporary financial hardship that you expect to improve in the near future.
- If you don’t expect to ever be able to pay off your tax debt, an offer in compromise might be a better option.
- If you can afford to make monthly payments based on your current income and expenses, consider a payment plan. The benefit of starting payments is that it will reduce your interest and penalties.
- You may also wish to talk to a bankruptcy attorney about whether bankruptcy is an option. Because of the other available options and how hard it is to include taxes in bankruptcy, you may not want to use bankruptcy unless you have other debts.
How long does currently not collectible status last?
When you request currently not collectible status, the IRS will stop collections for up to one year. It is possible to remain in currently not collectible status for longer than a year, but the IRS will review your financial situation annually.
You can find the expiration date for your currently not collectible status by requesting a tax transcript from the IRS.
When the IRS reviews your financial status annually, it first does an automated check by computer. Depending on your current income, the IRS may automatically renew your status or send you a notice. If you get a notice, you will either need to arrange to pay your taxes or submit information to requalify for currently not collectible status.
Does currently not collectible status pause the statute of limitations?
Under the statute of limitations, the IRS only has ten years to collect taxes you owe. There are limited exceptions to this rule such as in cases of tax fraud.
Currently not collectible status generally doesn’t pause the statute of limitations. If you remain in currently not collectible status until it’s after ten years from when your taxes were due or the IRS changed your tax return, the IRS may no longer be able to collect what you owe.
The IRS will typically conduct a closer review of your financial situation if you’re still in currently not collectible status when there’s a chance of the statute of limitations running out. Their goal is to collect the taxes you owe unless you truly can’t pay.
Does making a payment end currently not collectible status?
You can generally remain in currently not collectible status even if you made a payment towards the taxes you owe.
For example, you may have extra money you can put towards your tax balance to reduce the interest and penalties. Making that payment won’t end your CNC status.