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.
Currently Not Collectible Status
The IRS can declare a taxpayer’s debt to be “currently not collectible” (CNC or Status 53) if the Internal Revenue Service has received evidence that a taxpayer does not have a current ability to pay. Generally, this action is taken only when other options, such as a Partial Pay Installment Agreement, are not feasible because the taxpayer’s financial situation is so bad that even small monthly payments are not affordable. It is important to note that this is a temporary resolution and that the IRS will ask for updated financial information after twenty-four (24) months to determine whether or not the taxpayer’s ability to pay has been restored.
Before a Currently Not Collectible (CNC) status can be declared, the IRS will require you to submit Form 433-A, B or F in order to demonstrate that after paying necessary living expenses you have no money left to make monthly payments to the IRS. Further, you must be able to prove that you don’t own any assets that could be liquidated or sold to make a lump sum payment to the IRS.
The fact that you have nothing worth the taking by the IRS is not exactly an enviable position to be in, however, you can leverage your hardship as a short-term resolution until your financial situation improves. Often, we see that this two-year period allows our clients some breathing room and a chance to get back on their feet. It’s just the type of second chance they need. Once you are placed into Currently Not Collectible status, the IRS must stop all enforced collection activities, such as bank levies, Accounts Receivable levies and wage garnishments. You will also stop receiving collection notices, with the exception of a yearly statement reminding you of your current status. It is also important to note interest and penalties will continue to accrue during this time and, of course, you cannot accrue new liabilities or fail to file tax returns you are obligated to file.
If the financial statements show that your situation has improved enough, the IRS collection process will resume. However, a critical point is that the Collection Statute Expiration Date (CSED or Statute of Limitations for back taxes) continues to run while enrolled in this resolution. If the Collection Statute Expiration Date has passed, the tax debt itself for that period of liability will expire and the Internal Revenue Service will not be able to collect on it any further. It will effectively disappear from your account and any tax liens for that period will be released.