How Do You Deal with IRS Collections, Including CNC Status? 

Last Updated on 05/15/2024 by Christian Collins

Dealing with IRS collections can be an overwhelming experience, but understanding your options is the first step toward resolving your tax debt. Here, we will explore the process of handling IRS collections, with a focus on Currently Not Collectible (CNC) status. We’ll walk you through the steps to deal with the IRS, explain what CNC status means, and discuss other potential solutions to help you regain control of your financial situation. 

The IRS Collections Process 

Before delving into CNC status, it’s crucial to understand the IRS collections process. The IRS typically follows these steps when a taxpayer has an outstanding tax debt: 

1. Tax Assessment:

The IRS assesses the amount you owe, including penalties and interest, based on your tax return or other information. 

2. Tax Notice:

You receive a notice from the IRS, informing you of your tax debt and requesting payment. 

3. Payment Demand:

If you don’t pay or make arrangements to settle your debt, the IRS will send a series of reminders and notices, escalating in severity. 

4. Liens and Levies:

If you still don’t address your tax debt, the IRS may file a tax lien against your property or levy your bank accounts or wages. 

5. Legal Action:

In extreme cases, the IRS can take legal action, including seizing your assets or pursuing criminal charges. 

Currently Not Collectible (CNC) Status 

CNC status is a temporary relief option offered by the IRS. It allows taxpayers to delay collections efforts when they can’t afford to pay their tax debt due to financial hardship. CNC status essentially puts a hold on collection actions, offering you some breathing room. Here’s how to qualify for CNC status: 

1. Prove Financial Hardship:

To be considered for CNC status, you must demonstrate that paying your tax debt would result in significant financial hardship. This typically means that your necessary living expenses exceed your income. 

2. Complete a Financial Statement:

You’ll need to fill out a Collection Information Statement (Form 433-A for individuals or Form 433-B for businesses). These forms detail your financial situation, including income, expenses, and assets. 

3. Stay Current with Tax Filings:

You must be up to date on your tax filings. Ensure that you’ve filed all required tax returns. 

4. Await IRS Decision:

Once you’ve submitted your financial statement and relevant documentation, the IRS will evaluate your situation. If approved for CNC status, collection actions will be temporarily halted. 

The Benefits of CNC Status 

CNC status offers several advantages for those facing financial hardship and IRS collections: 

1. Relief from Collection Actions:

While in CNC status, the IRS will refrain from using collection actions such as wage garnishment, bank levies, or property liens. This provides temporary relief from the immediate financial stress associated with tax debt. 

2. Time to Recover Financially:

CNC status allows you the opportunity to regain your financial stability, find a stable source of income, or address other financial difficulties that may have led to your tax debt. 

3. Legal Compliance:

By obtaining CNC status, you remain in compliance with the IRS. It’s a legitimate option to address your tax debt without facing penalties for non-compliance. 

Maintaining CNC Status 

It’s crucial to maintain compliance with the terms of your CNC status. Here are the key steps to keep in mind: 

1. File Tax Returns:

While in CNC status, continue to file your annual tax returns on time. Staying current with your tax filings is essential to maintain your good standing with the IRS. 

2. Communicate with the IRS:

If your financial situation changes or improves while you’re in CNC status, it’s important to notify the IRS. Failure to report changes may result in the loss of CNC status. 

Other Tax Debt Resolution Options 

CNC status is just one option for dealing with IRS collections. Depending on your financial situation, there are other potential solutions to consider: 

1. Installment Agreement:

An Installment Agreement allows you to make monthly payments on your tax debt over time. This approach can be helpful if you can afford to pay your debt but need more time to do so. 

2. Offer in Compromise (OIC):

An Offer in Compromise is a formal agreement with the IRS to settle your tax debt for less than the full amount owed. To qualify, you must prove that paying your tax debt in full would cause undue financial hardship. 

3. Penalty Abatement:

If you have a reasonable cause for your failure to comply with tax obligations, you can request penalty abatement. This can remove certain penalties and interest from your tax debt. 

4. Seek Professional Assistance:

Navigating IRS collections and determining the best course of action can be challenging. Seeking professional assistance from a tax expert or attorney is often beneficial to ensure that you explore all available options and make the most informed decision. 

Conclusion 

Dealing with IRS collections, especially when facing financial hardship, can be daunting. Currently Not Collectible (CNC) status provides temporary relief from collection actions and offers the opportunity to regain financial stability. Remember to maintain compliance with the IRS, stay current with tax filings, and consider other tax debt resolution options based on your specific circumstances. Seeking professional guidance can be invaluable in ensuring that you make the best choice to address your tax debt effectively.