
How to Qualify for Currently Not Collectible Status
Facing IRS collections can feel overwhelming, especially when paying off your tax debt would jeopardize your ability to cover basic living expenses. The IRS recognizes that some taxpayers simply cannot afford to pay, which is where Currently Not Collectible (CNC) status comes in. This temporary relief option pauses the IRS’s collection efforts, giving you breathing room to focus on essential needs like housing, utilities, and medical care.
But CNC status isn’t automatic—you’ll need to prove that paying your tax debt would create undue financial hardship. That process can feel complicated, but understanding the qualifications and application steps can make all the difference.
What is CNC Status?
CNC status is an IRS designation for taxpayers who cannot pay their tax debt without experiencing severe financial hardship. If approved, the IRS temporarily halts collection efforts, including wage garnishments, bank levies, and property seizures. While this can provide much-needed relief, CNC status does not eliminate the debt—it remains owed, and interest and penalties may continue to accrue.
Who Qualifies for CNC Status?
To qualify, you’ll need to show the IRS that paying your tax debt would leave you unable to afford basic living expenses. The IRS uses strict guidelines to evaluate what qualifies as a necessary expense. These are costs deemed essential for maintaining a basic standard of living, such as:
- Housing: Rent or mortgage payments and property taxes.
- Utilities: Electricity, water, gas, internet, and phone services.
- Food: Groceries and other essential household supplies.
- Transportation: Gas, car payments, insurance, and necessary repairs.
- Medical Expenses: Insurance premiums, doctor visits, prescriptions, and other necessary healthcare costs.
To decide whether you qualify for CNC status, the IRS thoroughly reviews your financial situation. This includes looking at your income, expenses, and assets. Here’s how they evaluate each factor:
- Income: The IRS examines your earnings to determine whether they are sufficient to pay your tax debt while covering your necessary expenses. This includes wages, self-employment income, and any other sources of revenue.
- Expenses: The IRS compares your expenses to national and local standards. If your expenses exceed these standards, you’ll need to provide documentation and justification to show why the additional costs are necessary.
- Assets: The IRS may review your assets, including savings accounts, vehicles, and property, to determine if any could be liquidated to pay your debt. However, they will not require you to sell essential items like your primary home or car.
The key is to provide accurate and detailed documentation of your financial situation to show that paying your tax debt would create undue hardship.
Who Can Apply for CNC Status?
CNC status isn’t limited to individuals. Businesses experiencing financial challenges may also qualify. However, both individuals and businesses must meet the same fundamental requirement: proving that paying the tax debt would leave them unable to afford necessary expenses.
Here are some common scenarios where CNC status may apply:
- Low or Fixed Income: Retirees, individuals receiving disability benefits, or those earning wages below the poverty level.
- Unforeseen Financial Challenges: Job loss, medical emergencies, or other unexpected expenses.
- Business Struggles: Companies facing significant revenue loss or high operational costs that make paying back taxes impossible.
It’s important to note that CNC status is not a permanent solution to your tax debt. The IRS will periodically review your financial situation, and if they determine you can afford to pay, they may resume collection efforts. CNC status does not stop the IRS from filing a Notice of Federal Tax Lien, which could impact your credit score and ability to secure financing.
What Happens After CNC Status is Granted?
Once the IRS places you in Currently Not Collectible status, their immediate collection efforts will stop. This means no more wage garnishments, bank levies, or other enforcement actions.
While the IRS halts active collections, your tax debt doesn’t disappear. The balance remains, and interest and penalties continue to accrue. This means that even though you aren’t required to make payments immediately, your debt may grow over time.
The IRS often files a Notice of Federal Tax Lien, which secures their claim to your assets and can negatively affect your credit score. If you attempt to sell property or apply for financing, the lien could complicate those processes.
The IRS will periodically review your financial situation to ensure you still qualify for CNC status. If your income increases or your financial circumstances improve, the IRS may determine that you can afford to start repaying your debt. At that point, they might reinstate collection efforts or require you to enter into a payment arrangement. It’s crucial to stay organized and monitor any changes in your financial position.
Another critical responsibility while in CNC status is staying compliant with current tax obligations. You must file all required tax returns on time and pay any taxes owed for future years. Failure to do so can result in losing CNC status and resuming IRS collection actions.
Alternatives to CNC Status
While CNC status provides temporary relief, it’s not the only option for managing tax debt. Depending on your circumstances, other solutions may be more appropriate or offer a path to permanent resolution.
- Installment Agreements: An installment agreement allows you to pay off your tax debt in a manageable payment plan. These agreements can be tailored to your financial situation and may be a better option if you can afford smaller payments over time. The IRS offers several types of installment plans, including streamlined options for debts under certain thresholds.
- Offer in Compromise (OIC): If you can’t afford to pay your full tax debt, you may qualify for an Offer in Compromise. This program allows you to settle your debt for less than the total amount owed, provided you meet strict eligibility requirements. The IRS will evaluate your ability to pay, income, expenses, and assets before accepting an offer.
- Bankruptcy: While rare, bankruptcy can sometimes discharge certain types of tax debt. This option is generally reserved for extreme cases and comes with its own set of legal and financial challenges.
Take Control of Your Tax Debt Today
Dealing with the IRS can be overwhelming, but you don’t have to navigate it alone. Whether you’re considering applying for Currently Not Collectible status or exploring other tax relief options, having a trusted legal advocate on your side makes all the difference. At The Law Offices of Alyssa Maloof Whatley, we’ve helped countless clients in Atlanta and beyond find solutions to their tax challenges, regain peace of mind, and take control of their financial future.
Tax debt doesn’t have to define your life. Let us guide you through the process, handle the paperwork, and negotiate with the IRS on your behalf. Whether you’re seeking temporary relief or a long-term resolution, we’re here to help.