The Currently Not Collectible Status (CNC) is a designation used by the Internal Revenue Service (IRS) indicating that a taxpayer is facing significant financial hardship and, as a result, cannot make payments toward their tax debt at the present time. Under CNC status, the IRS halts all active collection activities, such as levies, garnishments, and property seizures, providing temporary relief to the taxpayer.
Criteria for CNC Status
Financial Hardship Assessment
To qualify for CNC status, the taxpayer must demonstrate that paying the tax debt would create undue financial hardship. This typically involves providing detailed financial information, such as income statements, living expenses, and asset evaluations. The IRS assesses these documents to ensure that the taxpayer’s financial situation meets the hardship criteria.
Duration of CNC Status
The CNC status is not permanent. It remains in effect until the IRS determines that the taxpayer’s financial condition has improved enough to resume payments. Regular reviews of the taxpayer’s financial situation are conducted to assess ongoing eligibility.
CNC Status Application Process
Step-by-Step Guide
Financial Disclosure: Complete and submit Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals) or Form 433-B (Collection Information Statement for Businesses).
Supporting Documentation: Attach necessary documents including pay stubs, bank statements, and monthly expense reports.
IRS Review: The IRS reviews the submitted forms and documents to make a determination.
Notification: If approved, the taxpayer receives a written notice from the IRS indicating that their account has been placed into CNC status.
Implications of CNC Status
Interest and Penalties
Even while in CNC status, the taxpayer’s debt continues accruing interest and penalties. This means that the overall tax liability may increase during the period of non-collection.
Statute of Limitations
The statute of limitations for tax collection (generally ten years) continues to run while the account is in CNC status. This can benefit taxpayers as the timeline for the IRS to collect the debt moves forward.
Credit Impact
Entering CNC status may be reported to credit bureaus, potentially impacting the taxpayer’s credit score and financial standing.
Comparisons and Related Terms
Comparison with Other IRS Relief Programs
- Installment Agreement: An arrangement where the taxpayer agrees to make regular payments over time, differing from CNC status where no payment is expected due to hardship.
- Offer in Compromise (OIC): A program that allows taxpayers to settle their tax debt for less than the full amount owed, as opposed to CNC which does not settle the debt but temporarily suspends collection.
Related Terms
- IRS Levies: Seizure of property to satisfy a tax debt.
- Tax Liens: A legal claim against the taxpayer’s property as security for unpaid tax debt.
- Financial Hardship: A situation where an individual cannot meet debt obligations due to limited income or resources.
FAQs
How long does CNC status last?
The duration of CNC status varies based on periodic financial reviews by the IRS. It lasts as long as the taxpayer’s financial situation justifies non-collection.
Can CNC status be revoked?
Yes, CNC status can be revoked if the IRS determines that the taxpayer’s financial situation has improved and they can afford to make payments.
What if my CNC application is denied?
If denied, the taxpayer may appeal the decision or explore other IRS relief options such as Installment Agreements or Offers in Compromise.
References
- Internal Revenue Service. “Currently Not Collectible Status.” IRS.gov.
- U.S. Taxpayer Advocate Service. “Financial Hardship and Relief Options.” taxpayeradvocate.irs.gov.
Summary
The Currently Not Collectible Status (CNC) provides critical temporary relief for taxpayers facing financial hardship by suspending active IRS collection efforts. While in CNC status, taxpayers should be aware of ongoing interest and penalties, as well as the potential impact on their credit score. Understanding the criteria, application process, and implications of CNC status is essential for those seeking to navigate this complex area of tax relief effectively.
