How To Apply for Currently Not Collectible Status

How To Apply for Currently Not Collectible Status

If you are unable to pay your tax debt, you can request that the IRS report your account as currently not collectible (CNC). This will temporarily delay all collection activities by the IRS.

Applying For Currently Not Collectible Status

The most common reason the IRS determines that an account is currently not collectible is due to economic hardship. You will often be required to submit a Collection Information Statement when applying for CNC status. This statement lists all of your assets, income, and expenses. The IRS will not take your word for it if you claim you have a financial hardship; they will make their own determination based on your financial information.

The IRS will also want you to be up to date in filing all tax returns, but sometimes this is a requirement that can be waived.

Benefits of Currently Not Collectible Status

The IRS will stop collection activities against you while your account is in CNC status. They will not attempt to levy your bank account or other assets.

This can give you some time to determine whether you can effectively dispute your tax debt, negotiate an Offer in Compromise or installment agreement, or consider a tax bankruptcy. Consult with a California tax lawyer to plan the best course of action for managing your tax debt.

Drawbacks of CNC Status

There are several pitfalls to CNC status. First, interest and penalties continue to accrue.

Second, the IRS can still file tax liens against your property. They will also likely seize any tax refunds you receive while in CNC status, so you may want to adjust your tax withholdings to avoid getting a large refund.

If you fail to file a tax return while in CNC status, the IRS may begin collection activities again, so keep up to date with all filings.

The IRS may also check in periodically to see if your financial situation has changed. If you start making more income, they will likely take notice and contact you.

Regardless of whether the IRS takes any action, you will not want to stay in CNC indefinitely. You still owe the underlying tax, and the penalties and interest can really add up over time.

When to Use CNC Status

Currently Not Collectible status can be an effective temporary fix, but you will need a plan to get rid of your tax debt permanently. Discuss with your tax lawyer using it as part of two-step process. Step number is to use CNC to give you a little breathing room while you work with your tax lawyer to find a permanent solution.

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