As we mentioned in our article about expense standards during the collection process, the IRS generally collects information about your income and allowable expenses to determine how much you could potentially pay them each month toward back tax debt.
Currently Non-Collectible Status, also known as CNC status, is what the IRS calls it when this process of reviewing your financial data reveals that you don’t have the capacity to make monthly payments.
Basically, that your allowable expenses are so equal to your income that they acknowledge they can’t reasonably pursue you for payments.
What CNC basically means for you:
In a nutshell, being placed into CNC status means that the IRS will not pursue collection action, such as wage garnishments etc., against you while you remain in that status. (Although they will likely place liens on large assets of yours, such as homes, property, or vehicles.)
They’ll review your financial data periodically, and if they determine a change in income or expenses that leads them to believe you can now make payments, they may revisit the status.
Note that as the CSED dates of your tax debt run out the IRS will look more aggressively at your financial situation to see if they can get some payments before the statutes expire.
If you are able to remain in Currently Non-Collectible status for the remainder of your statutes period, it is possible that the IRS will have to write off the debt. Any liens put in place for that tax debt will automatically release 30 days after the CSED dates — the point in which the IRS had to write off the debt.
Caveats to being in CNC status:
- The IRS may still place a lien on any sizeable assets you have, such as your home, vehicles, boats, or other properties. You may not have enough liquid cash to make regular payments, but they’ll want to know they’ll get paid if you liquidate assets in the future.
- Like all agreements you make with the IRS regarding tax debt, you must remain current on all future tax filings and must not create new tax debt. For instance, coming to an arrangement with them but then failing to file next year’s taxes, or filing and owing a new unpaid balance, can knock you out of any arrangement you’ve made with them.
Other uses for Currently Non-Collectible Status
It’s important to acknowledge that CNC status isn’t simply a “get out of jail free card”. Without feasible evidence that you truly can’t pay the tax debt the IRS doesn’t simply hand out this status.
However, in legitimate cases where a taxpayer has fallen on hard times, especially job loss, death of a spouse, or other tough situations applying for Currently Non-Collectible status can provide a temporary reprieve.
Whether it’s six months, a year, or a couple of years to get back on your feet, this status ensures no debilitating collection action will be taken against you during that time. And when your situation improves and you can afford to make payments to resolve the debt, you can renegotiate then.