Taxpayers who have no ability to make monthly payments towards their tax debt can request that the IRS place their account in currently not collectible (CNC) status.
While a taxpayer’s account is placed as currently not collectible, the IRS will not levy or attempt to collect the debt. Taxpayers who are are temporarily out of work are good candidates for currently not collectible.
In order to be considered for CNC status, the taxpayer must have filed all tax returns that are due and must be current on tax payments for the current period.
The IRS will determine whether a taxpayer qualifies for CNC by completing a financial analysis. You’ll be required to report your assets, income, and expenses on Form 433-A or 433-F.
Financial analysis – how the IRS determines if a taxpayer qualifies for currently not collectible status
Example 1: Bob was working as an independent contractor and racked up $250,000 in tax debt over the years. He has suffered a back injury and is out of work. He submits a collections information statement, Form 433-A. On it, he reports $0 income and $2,600 in monthly expenses. His assets include about 3 months of savings in his bank account.
The IRS agrees to place Bob in currently not collectible status.
Example 2: Bob has $250,000 of tax debt. His gross income is $12,500 a month, but due to his lifestyle, his expenses leave him with no savings at the end of the month. He lives paycheck to paycheck and has few assets.
Bob believes that because he has no remaining monthly income, the IRS should place him in currently not collectible.
Well, the IRS has something to say about that. They don’t care what Bob actually spends every month. The IRS will allow him a standard amount of expenses, and allow him actual expenses for health insurance, child support, and tax withholding.
Here’s a financial analysis based on the above example:
- Bob has $12,500 gross monthly income
The IRS applies federal and local standard standards based on the taxpayer’s family size and location. For example, based on Bob’s location and family size (1 individual), the IRS applies the following standards:
- Federal standards:
- Food – $307
- Housekeeping supplies – $30
- Apparel & Services – $80
- Personal care products and services – $34
- Miscellaneous $119
- Vehicle ownership (lease or monthly payment) – $471
- Local standards:
- Housing – $1,457
- Vehicle operating cost – $281
- Additionally, the IRS allows actual expenses for the following:
- Health insurance
- Court ordered payments (e.g., child support)
- Child/dependent care
- Term life insurance
- Tax withholdings (Federal, FICA)
- Secured debts
- The above actual expenses total $3,521
- Federal standards:
After applying the above standard and actual expenses, the IRS determines that Bob should have $6,200 remaining monthly income, not $0. He does not qualify for currently not collectible.
The IRS will expect Bob to adjust his living standards in order to make the $6,200 monthly payment.
How long do you remain in currently not collectible status?
The IRS will periodically review taxpayers placed in currently not collectible to determine if their financial situation has changed and if they’re able to now make monthly payments.
As long as your financial situation remains the same, you can remain in currently not collectible status. The 10-year collections statute will continue to run during this time.