When Should You Consider Applying for IRS Currently Not Collectible Status?

Dealing with tax debt can be overwhelming, especially when financial difficulties make it impossible to pay what you owe. This is where the IRS’s Currently Not Collectible (CNC) status may come into play. We’ve recently written about the CNC status and what it means. In this article, we’ll consider the factors that might influence whether or not you should apply for CNC status with the IRS.

Here are some scenarios where CNC status might be appropriate:

1.    Inability to meet basic living expenses

If paying your tax debt would force you to cut back on essential living expenses—such as rent or mortgage, utilities, food, or medical costs—CNC status could be a viable option. The IRS needs to see that your financial situation is such that you can’t cover both your daily needs and your tax debt. CNC status can provide relief while you manage these basic needs.

2.    Significant reduction in income

A major reduction in your income, such as losing your job or experiencing a decline in business revenue, can make it impossible to meet your tax obligations. If you’re struggling with reduced income and have no immediate prospect for a significant increase, CNC status might help you by pausing collection efforts until your financial situation improves.

3.    High medical expenses

Unexpected and high medical expenses can drain your finances and impact your ability to pay your tax debt. If your medical costs are substantial and leave you with limited income for other expenses, CNC status can offer temporary relief, allowing you to focus on managing your health-related financial burdens.

4.    Unemployed or underemployed

If you are currently unemployed or underemployed and have little hope of improving your financial situation soon, CNC status may be a suitable option. The IRS may consider CNC status if you are struggling to find stable employment or if your current job doesn’t provide enough income to cover your tax debt and daily needs.

5.    Temporary financial hardship

In cases where you are facing a temporary but severe financial hardship—such as a major unexpected expense or a short-term loss of income—CNC status can provide immediate relief. This status can help you manage through a tough period while you work on improving your financial situation. However, keep in mind that the IRS will periodically review your situation, so the temporary nature of your hardship will be taken into account.

6.    Inability to afford a payment plan

The IRS may offer you a payment plan to help manage your tax debt. However, if even the lowest payment option is unaffordable based on your current financial situation, CNC status might be a better alternative. It allows you to avoid immediate collection actions while you work on improving your finances.

7.    No significant assets

If you have minimal or no significant assets that the IRS could seize to satisfy your tax debt, CNC status might be appropriate. The IRS assesses your assets and income to determine if collection is feasible or if a delay is more suitable. If your assets are minimal, CNC status could provide temporary relief from collection actions.

Final Thoughts

Applying for Currently Not Collectible status can be a practical solution for taxpayers who are genuinely unable to pay their tax debt due to severe financial hardship. While CNC status offers temporary relief from IRS collection efforts, it’s important to remember that penalties and interest on your debt will continue to accrue.

If you’re in a situation where you can’t meet basic living expenses or afford any payment plan, CNC status may offer the breathing room you need. At the law office of Steven N. Klitzner, we can help you determine if CNC status is right for you and guide you through the process of managing your tax debt effectively. Call us today at (305) 564-9199 or fill out our website contact form to schedule a free and confidential consultation.