If you're financially unable to make tax payments, you may qualify for the IRS to report your account as currently not collectible. This means you can defer making payments to the IRS until you're financially able to pay.
Learn more about what having a currently-not-collectible account means and how to qualify.
What Is Currently Not Collectible?
If the IRS determines that you can't afford to make tax payments, it may decide that your account is currently not collectible (CNC). That means it won't garnish your wages or levy your bank accounts, and it won't require that you set up an installment agreement.
You must have little or no money left over after paying essential living expenses each month, such as rent, utilities, and groceries, to qualify for this relief.
How Currently-Not-Collectible Status Works
Currently-not-collectible status can provide time to get back on your feet and figure out a way to pay off the IRS without the immediate threat of collections activity. Your tax debt does not go away, though. You'll still owe the past-due tax, and the balance will continue to accumulate interest and late penalties.
The IRS will hold onto any tax refunds you might be entitled to in future years until your balance is paid off. This process is referred to as a "refund offset." The IRS might also file a Notice of Federal Tax Lien against your property, and this will show up on your credit report. It will put creditors on notice that you owe an outstanding balance to the IRS.
A tax professional can help you evaluate whether you're a good candidate for the status of currently not collectible and can suggest other options for dealing with your tax debt. They'll calculate the monthly payments you'd be required to make on an installment agreement, the likely settlement amount you'd owe if you were to ask for an offer in compromise, and review your eligibility for CNC status.
Installment agreements, offers in compromise, and CNC status all use roughly the same financial data.
Requirements for Currently-Not-Collectible Status
To receive the status of currently not collectible, paying your taxes must cause you significant hardship. According to the IRS, "significant hardship" means that paying anything toward your tax debt at this particular point in time would result in "serious privation." You'd literally be doing without some of the necessities of life if you were to give your money to the IRS instead. It doesn't mean that living without making some expenditures would be unpleasant or inconvenient.
To decide whether you qualify, the IRS will see whether you meet one or more of the following requirements:
- There are only a few more years left on the 10-year statute of limitations the IRS has to collect your tax debt.
- You make less than $84,000 a year.
- Your living expenses fall within IRS guidelines.
- You have little or no money left at the end of the month after paying your basic living expenses.
- Your only income is from Social Security benefits, welfare benefits, or unemployment benefits.
- You're unemployed and have no other source of income.
If you qualify, the IRS places a "closing code" on a taxpayer's account when it approves them for currently-not-collectible status. The code tells the IRS when to pull that taxpayer's file for review to determine if their circumstances have changed. It correlates to annual income.
Ask the IRS what closing code was used when setting up your non-collectible status so you'll know what income level will trigger a follow-up, and when.
The amount of time you can remain in CNC status is directly related to how much income you earn and how quickly your income situation improves.
Bob is 65 years old and he has an eight-year-old tax debt. He makes $30,000 a year. He has just enough money to pay for rent, utilities, groceries, and his monthly bus pass after taxes are withheld from his wages.
The IRS reviews his financial situation and determines that he qualifies for CNC status. The agent working the case puts in a closing code for $36,000. The IRS will follow up with Bob to see whether he can afford to start making monthly payments on an installment agreement when and if Bob files a future tax return showing "total positive income" of $36,000 or more.
The IRS considers several types of income for CNC status, including:
Earned income from holding down a regular job or running a small business as a sole proprietor isn't indicative of your total positive income. Any unearned income you might have counts, too.
Allowable living expenses are referred to as the "collection financial standards." There are four sets of standard living expense data:
- Food, clothing, and other household-type expenses
- Out-of-pocket health care expenses
- Housing and utilities
Suppose Jan pays $6,000 a month in rent. She is single and has no dependents. The IRS knows that it typically costs about $2,000 to rent a one-bedroom apartment in the city where Jan lives. It will only allow her $2,000 in rent expenses regardless of how much she actually spends.
You generally can't include extravagant or discretionary expenses, even if they're far less than what other people spend.
How to Request Currently-Not-Collectible Status
To qualify for currently-not-collectible status, you'll need to either contact the IRS directly or hire a tax professional to contact the agency on your behalf. You'll need to provide information about your income and expenses, and you may need to provide documentation of these as well.
If you don't qualify for currently-not-collectible status, you may qualify for an installment agreement to make your tax payments more manageable.
Don't ignore your tax debt; the IRS can garnish your wages and bank account. It's best to be proactive in dealing with unpaid taxes.
- Currently not collectible is a status the IRS gives to those who can't afford to make payments on their tax debt.
- To qualify, your tax payments must cause significant hardship.
- This status isn't permanent; it will be reviewed periodically, and if your situation changes, you may be required to start payments.
- To see whether you qualify, contact the IRS and/or a tax professional.