Highlights and key takeaways
- Currently not collectible status pauses IRS collections if paying your tax debt would cause significant financial hardship.
- While in CNC status, the IRS's 10-year collection statute continues to run, potentially bringing you to the point where the debt expires.
- The IRS will periodically reassess your financial status and resume collection activities if it determines you can afford to pay.
What is currently not collectible status with the IRS?
Currently Not Collectible is a designation by the IRS acknowledging you currently can't afford to pay your taxes without causing serious financial hardship.
When the IRS places your account in CNC status, it essentially puts a temporary hold on any active collection efforts, meaning it stops trying to garnish your wages or seize your assets. This gives you some space to breathe so you can focus on more immediate financial concerns, like keeping the lights on or paying your employees.
But don't get too comfortable—CNC status won't erase your tax debt. It remains on the books, just waiting for your financial situation to improve. And while you're in currently not collectible status:
- Interest and penalties still accrue
- The IRS can file a federal tax lien on your property, impacting your ability to sell or refinance
- The IRS can still take your tax refunds under the Treasury Offset Program (TOP)
So, while it provides some immediate tax relief, it's not a long-term solution to your problems.
Next, let's look at the benefits of getting the IRS to pause collection actions.
Further reading: How long can you go without filing taxes?
Benefits of CNC status
One of the biggest benefits of the CNC tax program is how it interacts with the IRS's 10-year statute of limitations for collecting debts. Yes, you read that right—the IRS only has ten years to collect on a tax debt. Once that period is up, they have to stop, no matter how much you owe.
Here's where CNC status becomes a powerful tool. When your account is in CNC status, the clock doesn't stop ticking on the 10-year statute of limitations. The time continues to run, meaning you're getting closer to the moment when the IRS can no longer come after you for old debt. Holding out long enough could mean you don't have to pay the tax owed at all.
However, to be eligible for CNC status, you need to prove to the IRS that paying your tax debt would cause you significant financial difficulties. In other words, you wouldn't be able to pay for basic living expenses like food, housing, utilities, or the essentials needed to keep your business operations running.
The IRS periodically reviews your financial situation throughout those ten years, and they can kick you out of CNC status if you have too much income or assets to qualify.
So, while CNC status means you might get out of paying taxes, it can also mean struggling financially for a decade. Fortunately, currently not collectible status isn't the only option for dealing with a big tax bill.
CNC status versus offer-in-compromise
Would you rather just settle your tax bill and move on? An Offer in Compromise (OIC) is essentially a negotiation with the IRS where you offer to pay a reduced amount. The IRS forgives the rest of your debt if they agree to your terms.
The catch is that it's pretty difficult to qualify for an OIC. The IRS only accepts an offer if it believes it's the most they can realistically collect from you. If you can sell property, like a second vehicle or a vacation home, to pay your tax liability, the IRS expects you to do so.
Is currently not collectible status just what you need to keep the IRS at bay while you get back on your feet? Next, we'll cover how to request CNC status.
Further reading: Five ways to pay off IRS tax debt.
How to request CNC status
So how do you actually get your debt into the IRS non-collectible status? Let's break it down step by step.
1. Gather your financial information
The first thing you need to do is gather all your financial information. The IRS doesn't just take your word for it that you're strapped for cash—they want proof. This means digging up bank statements and other documents to prove your income, monthly expenses, and assets. You'll need to provide information on everything from your rent or mortgage payments to your utility bills, groceries, business expenses, and anything else showing where your money goes.
2. Consider working with a tax professional
Getting into currently not collectible status can be a bureaucratic maze, so consider working with a tax expert if you're not comfortable navigating it alone. A CPA or tax attorney can help you gather the necessary documentation, fill out the forms, and present your case in the best possible light.
3. Contact the IRS
You can pursue applying for CNC status on your own by calling the IRS to see if you qualify. For individual tax matters, call 1-800-829-1040. For business tax matters, call 1-800-829-4933.
4. Fill Out Form 433-A or 433-B
Next, the IRS will ask you to fill out Form 433-F (for individuals) or Form 433-B (for businesses). These forms are basically a deep dive into your financial life. They cover everything from your monthly income and living expenses to the value of your assets, like bank accounts, real estate, and vehicles.
In some cases, the IRS may ask you to fill out Form 433-A instead of Form 433-F. Form 433-A is a more in-depth review of your financial situation, but the IRS typically only requires it if you owe $50,000 or more and are working with an IRS revenue officer.
Complete the forms accurately—anything and everything you could use to pay off your IRS debt must be listed.
5. File your past-due tax returns
The IRS may require you to file any past-due tax returns before approving your request.
6. Submit your application and wait for the IRS to respond
Once you've filled out the necessary forms, submit them to the IRS along with any supporting documentation. Then comes the waiting game. The IRS will review your financial situation and determine whether paying the taxes owed would cause you significant financial hardship.
The IRS will place your account in CNC status if they agree you're in over your head. But remember, you need to stay in this status for a while if you want to run the clock on the collections statute.
How long does CNC status last?
CNC status isn't designed to last forever, but it doesn't come with a set expiration date (other than the ten-year statute of limitations). You can stay in currently not collectible status as long as your financial situation justifies it.
But remember: the IRS won't forget about your debt—they'll periodically review your account to see if you still can’t afford to pay.
Where will they get your information? From your tax return, of course! One of the CNC program's requirements is to continue filing your tax returns and making federal tax deposits on time. The IRS can put you back into collectible status and resume collection efforts if you don't file a return (or file a fraudulent return to mask that your financial situation has improved).
On the flip side, your CNC status can continue if your financial situation doesn't improve.
Further reading: What is IRS one-time forgiveness? How and when to apply.
How Bench can help with your overdue taxes
Bench can't get you into CNC status directly, but we can help with the crucial first step: getting your financials in tip-top shape. After all, to show the IRS you can't pay your tax debt without facing financial hardship, you need to have your financial records in order. That's where we come in.
At Bench, we specialize in helping small business owners catch up on their books. Accurate, up-to-date financial records are the foundation of the case you'll present to the IRS. Plus, when your books are in order, you're better prepared to file tax returns on time, make estimated tax payments, and take advantage of every available tax deduction and credit to reduce the amount you owe.
We're here to help you get your financials in the best possible shape, making the rest of the process smoother and less stressful. Then, you can focus on what really matters—running your business and getting through this tough time with as little hassle as possible.
