Last Updated on 05/08/2024 by Christian Collins
Facing financial hardship can be an incredibly stressful experience, especially when dealing with tax debt. Fortunately, the Internal Revenue Service (IRS) offers a program known as “Currently Not Collectible” (CNC) status, which can provide temporary relief for taxpayers who are struggling to meet their tax obligations. Here, we’ll provide a straightforward guide to understanding CNC status, how to qualify for it, and the benefits it offers in times of financial hardship.
What is Currently Not Collectible (CNC) Status?
Currently Not Collectible (CNC) status is a designation by the IRS that temporarily halts the collection of unpaid tax debts. It is not a forgiveness of the debt, but rather a recognition that the taxpayer is currently unable to make payments without suffering significant financial hardship. CNC status is typically granted to individuals and businesses who meet specific criteria.
Qualifying for CNC Status
To qualify for CNC status, you must demonstrate that paying your tax debt would result in significant financial hardship. The IRS evaluates your financial situation and considers several factors to determine eligibility. Here are the key requirements:
-
Inability to Pay
You must prove that you cannot afford to pay your tax debt in full, either as a lump sum or through installment payments, without suffering undue financial hardship. The IRS will assess your financial situation to determine if you meet this criterion.
-
Financial Documentation
The IRS requires you to provide a detailed financial statement outlining your income, expenses, and assets. This documentation is crucial in demonstrating your inability to pay. Be prepared to provide proof of your financial situation, such as bank statements, pay stubs, and bills.
-
Compliance with Tax Filings
You must be current with all required tax filings. This means you must have filed all necessary tax returns, including the current year, if applicable. Failure to file required returns can disqualify you from CNC status.
-
Monthly Necessary Living Expenses
The IRS will assess your monthly necessary living expenses. These expenses typically include items like rent or mortgage payments, utilities, groceries, transportation costs, and healthcare expenses. The IRS uses national and local standards to determine the allowable expenses for your area.
-
Monthly Disposable Income
The IRS will calculate your monthly disposable income by subtracting your allowable expenses from your income. If your disposable income is insufficient to cover both your necessary living expenses and your tax debt, you may qualify for CNC status.
-
Asset Equity
The IRS may also consider the equity in your assets, such as real estate or valuable personal property. If the sale of your assets would not generate enough funds to cover your tax debt, this can work in your favor when applying for CNC status.
Applying for CNC Status
If you believe you meet the qualifications for CNC status, the next step is to apply. Here’s how to go about it:
-
Contact the IRS
Reach out to the IRS to request CNC status. You can do this by contacting the phone number provided in your tax notice or by reaching out to the IRS directly. Be prepared to explain your financial situation and why you believe you qualify for CNC status.
-
Provide Financial Documentation
The IRS will request a detailed financial statement from you to assess your ability to pay. Ensure you gather all necessary documentation to support your request.
-
Await IRS Evaluation
Once you’ve submitted your request for CNC status and provided the required documentation, the IRS will evaluate your financial situation. This process can take some time, so it’s essential to be patient.
-
Communication is Key
Stay in contact with the IRS throughout the evaluation process. Be prepared to provide any additional information or documentation they request promptly.
Benefits of CNC Status
Securing CNC status can offer several benefits to taxpayers who are facing financial hardship, including:
-
Temporary Relief
CNC status provides temporary relief from the collection of your tax debt. During this period, the IRS will halt collection actions, such as wage garnishment, bank levies, and property liens.
-
Reduced Financial Stress
By pausing collection efforts, CNC status can significantly reduce immediate financial stress, allowing you to focus on improving your financial situation.
-
Time to Recover
CNC status provides you with time to recover financially, find a stable source of income, or address other financial difficulties that may have contributed to your tax debt.
Maintaining CNC Status
It’s important to note that CNC status is not a permanent solution. The IRS will periodically review your financial situation to assess your ability to pay. Here’s how to maintain CNC status:
-
Stay Current with Tax Filings
Continue to file all required tax returns on time. Failure to do so may result in the revocation of your CNC status.
-
Respond to IRS Requests
Cooperate with the IRS by promptly responding to any requests for updated financial information or documentation.
-
Report Changes in Your Financial Situation
If your financial situation improves or changes significantly, it’s crucial to inform the IRS. Failure to report improvements could result in the loss of your CNC status.
Conclusion
Currently Not Collectible (CNC) status is a valuable tool for individuals and businesses facing financial hardship due to tax debt. By demonstrating your inability to pay without suffering undue financial hardship and providing the necessary financial documentation, you can secure temporary relief from IRS collection actions. Maintaining open communication with the IRS, staying current with tax filings, and cooperating with their requests are essential to retaining CNC status. CNC status can provide breathing room for those in challenging financial situations, allowing them the opportunity to rebuild their financial stability and address their tax debt in the future.