If you’re dealing with tax debt in Atlanta, you’ve probably come across the term Currently Not Collectible (CNC) status. This designation can provide temporary relief from IRS collection efforts, but it also comes with potential risks. 

At The Law Offices of Alyssa Maloof Whatley, we help individuals and businesses in Georgia understand their financial options, including the impact of CNC status on long-term financial health.

What CNC Status Means for Your Credit

CNC status is a designation the IRS grants to taxpayers who can prove that paying their tax debt would cause significant financial hardship. When your account is placed in CNC, the IRS temporarily halts collection actions, including wage garnishments and bank levies. While this can offer immediate relief, it doesn’t erase the tax debt, and it may have indirect consequences on your credit.

CNC status itself does not appear on your credit report. Unlike bankruptcy or foreclosure, CNC is not directly reported to credit bureaus. However, lenders may still perceive outstanding tax debt as a red flag. 

Although the IRS no longer automatically files tax liens, existing liens remain and can negatively impact your credit score. Even if CNC doesn’t show up on a credit report, lenders can still review tax transcripts or financial disclosures and consider unresolved tax debt when evaluating loan applications.

Financial Challenges with CNC Status

While CNC provides relief from aggressive IRS collection efforts, it does not erase your tax debt or eliminate financial consequences. Being in CNC status can still create roadblocks when it comes to securing loans, finding employment, and managing future tax obligations. Understanding these challenges can help you plan ahead and minimize potential setbacks.

Limited Access to Loans and Credit

Unresolved tax debt is a red flag for many lenders, making it more difficult to obtain loans or credit lines. Even if CNC temporarily shields you from IRS enforcement, financial institutions may still view outstanding tax obligations as a sign of financial instability. This means that banks, credit unions, and mortgage lenders may hesitate to approve applications, particularly for large loans such as home mortgages or business financing.

If a lender does approve a loan, it often comes with stricter terms, such as higher interest rates, lower borrowing limits, or the requirement of additional collateral. Some lenders may require proof that you have a plan to resolve your tax debt before considering your application. Without proactive financial planning, CNC status can make borrowing significantly more costly and restrictive.

Employment

Employers in industries that require financial responsibility—such as banking, government, and corporate leadership—often conduct background checks that include reviewing outstanding debts. If an employer sees significant tax liabilities, it may raise concerns about financial reliability, potentially affecting job opportunities, promotions, or security clearance renewals. For job seekers, CNC status may not appear directly in background screenings, but unresolved tax debt can still impact hiring decisions.

Future Tax Refunds and Collections

CNC status is not permanent. The IRS periodically reviews your financial situation, and if they determine you can resume payments, collection efforts may restart. This includes wage garnishments, bank levies, and other enforcement actions. If you qualify for a tax refund while in CNC status, the IRS will automatically seize it to offset your outstanding debt. This can make it difficult to plan financially, particularly if you were counting on a refund to cover expenses or reduce other debts.

How to Protect Your Credit While in CNC

Being in Currently Not Collectible (CNC) status can provide much-needed relief from IRS collection efforts, but it’s not a permanent solution. To safeguard your financial future, you need to take proactive steps to maintain your credit standing and prepare for when CNC status is lifted. The key is to use this time wisely to minimize financial risks and develop a long-term strategy for resolving your tax obligations.

Reviewing your credit report regularly allows you to spot inaccuracies and dispute any errors that could be dragging down your score. Keeping your credit utilization low—below 30%—demonstrates responsible financial management to lenders and can help improve your overall creditworthiness.

If you plan to apply for a mortgage or loan in the near future, transparency with lenders is crucial. Some lenders may still approve loans for individuals with outstanding tax debt if they see a structured repayment plan in place. By proactively discussing your CNC status and financial situation with potential lenders, you can better position yourself for approval and prevent surprises during the underwriting process.

CNC status does not eliminate your tax debt, so it’s important to explore options for resolving it before the IRS re-evaluates your financial situation. An Offer in Compromise may allow you to settle your tax debt for less than you owe, while an installment agreement can provide a structured payment plan that keeps you on track. 

In some cases, penalty abatements may reduce the total amount owed, making repayment more manageable. Working with a tax professional can help you determine the best strategy based on your specific financial circumstances.

Since CNC status is temporary, it’s also essential to prepare for the possibility of collections resuming. The IRS periodically reviews CNC cases, and if your income increases, you may no longer qualify. To stay ahead of this, start setting aside savings for future tax payments and prioritize reducing high-interest debt. Building an emergency fund now can help you avoid financial strain when IRS collections restart.

Beyond tax resolution, taking steps to rebuild your financial stability is critical. Establishing consistent, on-time payments for your bills, avoiding unnecessary new credit applications, and maintaining steady income will help reinforce your overall financial health. Strengthening your financial foundation now not only protects your credit while in CNC status but also ensures long-term stability when CNC ends.

Take Control of Your Tax and Credit Future

CNC status can be a lifesaver when you’re facing financial hardship, but it’s important to understand the risks and take steps to protect your financial future. 

If you’re struggling with tax debt and need guidance on your options, The Law Offices of Alyssa Maloof Whatley is here to help. Contact us now to discuss your situation and develop a strategy that works for you.