Currently Not Collectible (CNC)

Key takeaways: 

• Currently Not Collectible (CNC) status temporarily pauses IRS collection activities if you can’t afford to pay when you’re in financial hardship.
• You must prove that paying the debt would stop you from covering basic living expenses, meaning that your income falls short of or barely meets your essential costs.
• The IRS stops wage garnishments, levies, and collection notices if you have CNC status. However, your debt remains and continues to accrue interest and penalties.
• CNC status is temporary; the IRS reviews cases every one or two years. If your finances improve, the IRS may resume debt collection.
• A tax professional can help you apply for CNC status or explore other options based on your situation. 

What Is Currently Not Collectible (CNC) Status?

Currently Not Collectible (CNC) status affords you a temporary pause on any IRS collection activities if you’re in financial hardship. You will still owe the debt, but the IRS agrees not to pursue it for a period. That gives you time to get your finances in order without facing hardship. 

It’s important to understand that CNC status is not automatic. You need to apply for this type of hardship relief. To be approved for this status, the IRS will need to determine that you can’t pay the debt that you owe while still meeting your basic living expenses.

Once you’ve been approved for CNC status, the IRS may still file tax liens. However, other collection actions, including wage garnishments, levies, and notices, will stop during this period.

When Is IRS Hardship Relief the Right Option?

CNC status may be the right option if you’re struggling to pay the debt you owe. You might be eligible for this type of hardship relief if: 

• Your income does not cover your monthly expenses
• Your income only barely covers your monthly expenses
• You are currently unemployed or have no form of income
• Your only current income is welfare, unemployment, or Social Security
• You’re retired, have a disability that stops you from working, or are on a fixed income
• You can’t afford an installment agreement or an Offer in Compromise (OIC)

You can use CNC status strategically if you’re close to the Collection Statute Expiration Date (CSED). The CSED is generally 10 years after the IRS assesses your tax debt to collect it, but this can be a complex calculation that you should have a tax resolution professional perform before assuming your taxes will hit their CSED. At that point, the debt legally expires, and the IRS can’t collect it anymore. 

If you’re closing in on that date in the next year or two, applying for CNC status can act as a protective shield. When you qualify for this status due to genuine financial hardship, the IRS will suspend any collection activities, giving you the chance to wait it out until the CSED applies.

How McLaud Law Helps with IRS Hardship Cases

At McLaud Law P.C., our team has the expertise to support your IRS hardship case. The IRS has detailed procedures and standards when evaluating an application for CNC status. We know what they will be looking for and how to make sure your application is presented in the best way possible. When you get in touch, we will get started on the following: 

Detailed intake process 

First up, our team conducts a detailed intake process. This includes a complete financial analysis of your circumstances, documentation review, and transcript analysis to check your compliance and calculate your CSED. This process allows us to determine what the best course of action is, based on both your debt and situation.

Choosing the right route 

While CNC status is an option, there are alternatives for taxpayers who are facing financial hardship. These include proposing an Offer in Compromise (OIC) or an installment plan. Our expert team will consider the best way forward for your unique set of circumstances. 

Communicating with the IRS

Throughout the process, we communicate with the IRS on your behalf. This includes dealing with collections efforts, filing appropriate appeals, and preparing the application for the resolution you choose to pursue.

Representation through the process

Working with tax resolution professionals means that you get expert representation throughout the entire process. This includes updates, should the IRS decide to review or even reopen the case in the future. Our team is there to help you to navigate the full hardship relief process. 

Other Tax Resolution Options to Consider

Before deciding to go after CNC status, our team will consider other tax resolution options. To help you better understand the routes you can take, here’s a quick breakdown of each:

• Installment Agreement: You agree to pay monthly installments to the IRS until your complete debt is cleared. Consider this if you can afford to make some repayments while also covering your essential living expenses. 
• Offer in Compromise (OIC): You propose settling your tax debt for less than the full amount that you owe. The IRS uses the Reasonable Collection Potential (RCP) formula to calculate the minimum acceptable settlement amount. 
• Partial Payment Installment Agreement (PPIA): This tax relief option allows you to pay smaller amounts as installments to clear your debt. However, you will need to prove that paying larger installments would put you in financial hardship. 

Knowing which option works for you can feel like a minefield. However, with the proper expert guidance, you can decide which route will give you the hardship relief you are eligible for.

Is CNC Status Permanent?

No, Currently Not Collectible (CNC) status is not permanent. This is a temporary designation, and the IRS can review your financial situation periodically – typically every year or every other year. If your income increases, the IRS may resume collection activities. 

While you have CNC status, the CSED continues to run. That means that there’s a chance your debt can expire before collection resumes, and you will not have to pay the outstanding amount.

Benefits and Limitations of CNC Status

Before you apply for CNC status, you should understand both the benefits and the limitations of this relief. Here’s a breakdown of what you need to know.

Benefits of CNC status: 

• This status immediately stops the IRS from actively collecting the debt.

• You won’t have to make any monthly repayments. 
• This status gives you peace of mind if you’re facing financial difficulty.
• The collection statute may expire while your case is inactive.

Limitations of CNC status: 

• Your debt will continue to accrue interest and penalties. 
• The IRS can still file liens during this time. 
• The IRS can review and revisit your case if your finances improve.
• You must continue with future tax filings and payments. 
• The IRS may seize any tax refunds and apply them to your outstanding debt.

Speak to a tax resolution professional to help you decide whether CNC status is the smart way to go when making this decision. 

FAQs

What qualifies as a financial hardship for IRS purposes?

To qualify for CNC status, you’ll need to show that repaying the debt you owe would put you in financial hardship. To do this, you need to prove that you cannot cover or can only barely cover your basic living expenses. 

How long does CNC status last?

CNC status usually lasts between six months and two years. However, the IRS can review your situation periodically – either by monitoring your tax returns or requesting a financial disclosure form. If your financial situation has improved, the IRS may resume debt collection activities. 

Will the IRS stop all collection activity if I’m approved?

If you are approved for CNC status, the IRS generally won’t continue with collection activities. However, you will still accrue interest on your debt during this period. Additionally, the IRS may keep your tax refunds and apply them to your debt.

What happens if I start earning more money?

If you start earning more money or your financial situation changes, you may no longer be eligible for CNC status. The IRS may review your circumstances and determine that you are no longer in financial hardship. They can then resume tax collection activities. 

Why Work with McLaud Law?

McLaud Law P.C.’s expertise in IRS hardship and CNC filings gives us the competitive edge. Our team provides honest assessments of your financial and tax circumstances. If the CNC route is not viable, we will explain why and offer alternatives to better suit you. 

Our professionals are skilled in negotiations with the IRS and can navigate the challenging area of providing proper documentation of financial hardship. They can also communicate directly with the IRS on your behalf, taking care of the entire process from start to finish. Contact the team for a clear explanation of how to proceed, realistic expectations, and long-term support.

Contact Our Team Now 

For help with your tax relief options, contact us at McLaud Law P.C. today. We offer a free consultation and help you find the right choice based on your financial circumstances. Use our online form or call the team on 585-397-7785. Let us make your tax problem our tax problem.

This communication is Attorney Advertising. It is presented for informational purposes only and does not constitute legal advice. Every legal situation is different, and prior results do not guarantee a similar outcome. This communication does not create an attorney-client relationship between McLaud Law P.C. and the recipient.