The IRS may place a delinquent federal income tax account in Currently Non-Collectable status (“CNC”) when the taxpayer is unable to financially afford to pay tax liability while at the same time pay for basic living expenses.[1] Inability to pay is referred to as a “hardship.”[2] When an account is placed in CNC, the IRS stops collection on the account for a period of time and releases tax levies.
CNC may be sought by the taxpayer when the taxpayer lacks the assets and income for an installment agreement or an offer in compromise or otherwise does not qualify for those tax resolution options. For some taxpayers, it is hoped that the tax collection statute of limitations, which is typically 10 years from assessment, will expire while the tax is in CNC and will never be paid.
The following points must be considered when determining whether to apply to the IRS for CNC status.
How to qualify. Generally a Collection Information Statement (“CIS”) (IRS Form 433-A or 433-B) is required by the IRS before CNC is granted. [3] The CIS requires the taxpayer to disclose income, assets and expenses. The IRS may require substantiation of some of the expenses, such as the loan paperwork for an automobile loan or the balance of a retirement account.
Lack of assets. The Internal Revenue Manual states, “Generally, these cases involve no income or assets, no equity in assets or insufficient income to make any payment without causing hardship.”[4] However, I have successfully obtained CNC status when the taxpayers had equity in a house, but due to age and infirmity of the taxpayers, the IRS did not require the equity to be paid over. Grounds for the IRS not requiring the equity of assets in all CNC situations is found in IRM 5.16.1.2.9(6): “If the taxpayer has equity in assets, the reason collection is not being pursued must be documented in the history.”
Tax lien. The IRS will generally filed a Notice of Federal Tax Lien when the unpaid tax balance exceeds $10,000.[5]
Release of levy. Upon approval of CNC, the IRS releases levies on wages of the taxpayer.[6]
Unfiled tax returns. The IRS may place a tax account in CNC even if the taxpayer has unfiled tax returns.[7] This is different from offers in compromise and installment agreements where the taxpayer must be up to date on tax filings.
Interest and penalties. Interest and penalties continue to accrue while an account is in CNC.[8]
Follow up by IRS. The IRS may follow up to review a change in a taxpayer’s ability to pay tax that has been placed in CNC. In some cases, the taxpayer’s annual tax return is reviewed for taxpayer income.
If you are unable to pay delinquent tax, please contact Jared Le Fevre to determine if you may be a candidate for Currently Non-Collectable status.
Jared M. Le Fevre is a tax attorney and partner in the Tax, Trusts and Estates Practice Group of Crowley Fleck PLLP. Mr. Le Fevre represents taxpayers before the IRS, IRS Independent Office of Appeals, Tax Court, Federal District Court and state tax agencies throughout Montana, Wyoming, North Dakota, Idaho, and Utah. Mr. Le Fevre is involved in federal and state and local tax audits, appeals, and tax resolution throughout these western states. Mr. Le Fevre also advises clients on the tax effects of business and real estate transactions.
[1] IRM 5.16.1.2.9(2).
[2] IRM 5.16.1.2.9(1).
[3] IRM 5.16.1.2(2).
[4] IRM 5.16.1.2.9(1).
[5] IRM 5.16.1.2(3).
[6] IRM 5.16.1.2.9(10).
[7] IRM 5.16.1.2.9(12).
[8] IRM 5.16.1.2.9(15).