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 to be “currently not collectible” if the agency has received evidence that a taxpayer has no ability to pay his taxes. Generally, this action is taken only when other options, such as an offer in compromise, are not feasible because the taxpayer’s financial situation is so bad that even small monthly payments are not affordable.
Before a currently not collectible status can be declared, the IRS will require you to submit Form 433-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 IRS taking 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. Once you are placed into currently not collectible status (also known as Status 53), the IRS must stop all collection activities, such as levies. Interest and penalties will continue to build up against you, and you will have to provide financial statements each year to show whether or not you are still “currently” unable to pay.
If the financial statements show that your situation has improved enough, the IRS collection process will resume. But if the 10-year statute of limitations for back taxes expires while you have “currently not collectible” status, the tax debt itself will become permanently not collectible and no other form of tax resolution will be needed.