There are times where you agree you owe the IRS, but you can’t pay due to your current financial situation. If the IRS agrees you can’t both pay your taxes and your reasonable living expenses, it may place your account in Currently Not Collectible (CNC) status.
While your account is in CNC status, the IRS generally won’t try to collect from you. For example: It won’t levy your assets and income. However, the IRS will still assess interest and penalties to your account, and may keep your refunds and apply them to your debt. You’ll also continue to receive an annual bill from the IRS because that is required under the law.
Before the IRS will place your account in CNC status, it may ask you to file any past due tax returns.
If you request CNC status, the IRS may ask you to provide financial information, including your income and expenses, and whether you can sell any assets or get a loan.
During the time the IRS may collect the balance you owe, it may review your income annually to see if your financial situation improved. Generally, the IRS can attempt to collect your taxes up to ten years from the date they were assessed, though the ten-year period is suspended in certain circumstances. The time the suspension is in effect will extend the time the IRS has to collect the tax.
If you decide to request currently not collectible (CNC) status, you should:
- File tax returns for prior years (if you were required to file a return), even if you can’t pay the amount you owe right now.
- If you need help preparing your tax returns and can’t afford to pay a tax return preparer, consider free file options.
- If you meet the requirements, you might be able to have your return prepared for free at a Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) site.
- The IRS may place your accounts in CNC status, if you have unfiled returns and are in a hardship situation.
- Continue to file your returns on time even if you can’t pay. This will prevent late filing penalties.
- Gather your information to verify your income, expenses, and any debts you owe (loans, etc.). You may need to provide the IRS this financial information so it can decide whether to grant your request.
While applying for currently not collectable (CNC) status
- The IRS may ask you to file any past due returns.
- The IRS may ask you to complete IRS Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, or IRS Form 433-F, Collection Information Statement, and/or IRS Form 433-B, Collection Information Statement for Businesses, before making any collection decision.
- The IRS may require documentation to support items listed on your Collection Information Statements.
- The IRS will continue to charge monthly late payment penalties and interest on your account.
If the IRS places your account in currently not collectable status
- The IRS may keep your tax refunds and apply them to your debt.
- If the IRS places your account in CNC status, you can still make voluntary payments.
- If your account is placed in CNC status, the IRS shouldn’t levy your assets or income.
- The IRS may file a Notice of Federal Tax Lien (NFTL) even if your account is placed in CNC status. The filing of an NFTL can affect your credit rating, and your ability to sell property or other assets.
- The IRS may contact you to update your financial information to be sure your ability to pay hasn’t changed.
What if I still can’t pay in the future?
If your account is placed in CNC status and the IRS sends you a notice about your tax bill, call the number on the notice to discuss your financial situation. The IRS will take your updated information and decide if you still can’t pay your IRS debt and meet your living expenses. Make sure you have all the information about your income and expenses before you call.
Do you Have a Federal Tax Issue You Need Help With?
The Neighborhood Christian Legal Clinic – Low Income Taxpayer Clinic can consult with you to provide advice regarding your IRS tax issues, and/or potentially act on your behalf for FREE if you qualify for assistance (come to a clinic intake session)!
Jim Floyd is the Staff Enrolled Agent at the Neighborhood Christian Legal Clinic – Low Income Taxpayer Clinic. As an Enrolled Agent, Jim is a federally-licensed tax practitioner with unlimited rights to represent clients before the Internal Revenue Service. This means he is unrestricted as to which taxpayers he can represent, what types of tax matters he can handle, and which IRS offices he can represent clients before. Enrolled agent status is the highest credential the IRS awards.
Source: Internal Revenue Service / Taxpayer Advocate Service