What “Currently Not Collectible” Status Means for You and the IRS

Every April, the taxman comes knocking—and if you weren’t withholding enough money from your paycheck, you’ll owe the IRS money when you file. But what if you owe more than you can afford to pay?

One option is to apply for “currently not collectible” status with the IRS, which allows you to defer payment if approved.

What is IRS “currently not collectible” status?

Currently not collectible (CNC) status is an agreement between you and the IRS. If you believe you can’t pay what you owe, you apply for the status by filling out a form and thoroughly documenting your financial situation, including proof of income and monthly expenses.

If approved, you won’t need to pay the balance you owe for now, but your account will continue to collect interest, and you’ll receive late payment penalties (called the “Failure to Pay Penalty”). That means you’ll eventually owe more money than you would have if you simply filed by April 15. The IRS can also keep refunds you might be owed in future years to pay down your debt.

CNC status isn’t forever. The IRS will conduct annual audits of your finances and decide when it can begin collecting taxes from you once again.

And remember: Just because you file for CNC status doesn’t mean the IRS will approve it. If you aren’t approved, you must find other ways to settle your tax debt with the IRS.

Who qualifies for “currently not collectible” status?

To qualify for currently not collectible status, you must prove to the IRS that you can’t pay. And as trustworthy as you might be, the IRS won’t simply take your word for it. You’ll need to allow for a full audit of your finances.

You might qualify if:

• You don’t have any income or assets to pay your taxes.
• You rely solely on unemployment, Social Security checks, or welfare to pay your bills.
• Your basic living expenses are more than your income.

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Who can benefit from CNC status?

Erin Kinkade

CFP®

This could work in the favor of someone who lost their job or experienced a work reduction due to a major life event—maternity leave, caring for a family member, divorce, death of a spouse, or natural disaster, for example. A young person who didn’t realize they had to pay taxes and is in the job searching stage might also benefit.

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How to file “currently not collectible” status with the IRS

To file for currently not collectible status, you can write or call the IRS. Calling will get you a faster resolution.

Individual taxpayers can dial 800-829-1040 to begin the process, or you can request the help of an accountant or attorney. When you file, the IRS will:

• Review your financial accounts and assets, such as savings accounts and investments, to see whether you have money you could draw from to pay your tax debt, as long as you don’t depend on that money to pay your monthly expenses.
• Ask you to file Form 433. More specifically, the IRS could ask you to file Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals), Form 433-F (Collection Information Statement), and/or Form 433-B (Collection Information Statement for Businesses). 
• Require documentation of your monthly income, including pay stubs and bank statements.
• Compare that income against your basic living expenses, as evidenced by bills and receipts. Note that the IRS has a calculation for allowed living expenses. For instance, if you pay high rent to live in a luxury townhome, the IRS may not calculate the full rent payment toward your basic living expenses because you could likely find a cheaper place to live.

Page 1 of Form 433-A:

Source: IRS

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Tip

To ensure the best chance of approval, CFP® Erin Kinkade recommends having the supporting documentation readily accessible to provide as soon as possible.

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What is the “currently not collectible” status statute of limitations?

The IRS can’t hold your tax debt against you forever. Instead, it must abide by the collection statute of limitations, which gives the organization 10 years to collect your debt after it’s first assessed. That often means when you file your return, but you may also enter the 10-year collection period if the IRS discovers a debt due to an audit.

The IRS may pause the 10-year period if you take certain actions, which means your statute of limitations could last longer than a decade. Actions that may cause the IRS to suspend the 10-year period include:

• If you request an installment agreement or a collection due process hearing
• If you file bankruptcy or an Offer in Compromise
• If you live outside the U.S.
• If you serve in the military or enter a combat zone
• If you file for innocent spouse relief

Impact on tax refunds and future filings

If you have achieved CNC status, you’ll need to file taxes in future years, even if you’re still experiencing financial hardship and can’t afford to pay your taxes. Filing helps you avoid paying additional late filing penalties (called “Failure to File Penalties”).

If you’re owed a refund when you file in future years, the IRS can garnish what you’re owed and apply it to your outstanding debt.

What happens after you achieve “currently not collectible” status?

If you achieve CNC status, you aren’t exempt from paying taxes forever. Instead, your debt will continue to accrue interest, and you’ll incur late payment penalties. The IRS may also file a Notice of Federal Tax Lien if you owe more than $10,000, which can lower your credit score.

Each year, the IRS will audit your finances. If the IRS determines your financial situation has changed for the better—enough for you to pay what you owe—you’ll need to make a payment. 

Treat currently not collectible status as a last resort if you can’t pay your taxes. Consider other options, such as asking the IRS to put you on a payment plan, asking for an Offer in Compromise, or taking out a personal loan to cover your tax debt, before applying for CNC.

FAQ

Can the IRS revoke my “currently not collectible” status?

The IRS will continue to monitor your financial situation when you’ve achieved CNC status. If, at any point, the IRS determines that you are able to start making payments, it will revoke your currently not collectible status.

Will CNC status affect my credit score?

CNC status can affect your credit score if the IRS files a Notice of Federal Tax Lien. This typically happens when you owe more than $10,000.

Does CNC status pause interest and penalties on my owed taxes?

Currently not collectible status does not pause interest and late payment penalties on what you owe. It simply keeps the IRS from requiring payment (for now). The tax debt will continue to grow through interest and penalties, so tread carefully when thinking about applying for CNC status.

Is there a fee for applying for CNC status?

There is no fee to apply for CNC status, but the forms can be daunting, and you’ll need to compile a lot of paperwork. If you’re confused or overwhelmed, you may need to hire a tax accountant or tax attorney, which can get expensive.

Can state taxes also be made “currently not collectible”?

CNC status applies to federal taxes. Each state can set its own tax laws, so you’ll need to reach out to your state’s tax department to determine what options you have if you can’t pay your state income taxes.

What should I do if my application for CNC status is denied?

If your initial attempt at receiving CNC status is denied, ask to speak to the IRS representative’s manager and make your case with them. If you continue to be denied, you can appeal the decision to the IRS Independent Office of Appeals, which is independent of the IRS Collection Office.

You can also hire an attorney or accountant to help you make your case. Of course, if you’re applying for currently not collectible status, you may not be able to afford this, but you might qualify for a Low Income Taxpayer Clinic.

If you’re still denied after the appeals process, you’ll need to explore other options for making payments on what you owe—for example, an Offer in Compromise or setting up installment payments.