Currently Not Collectible (CNC) can resolve a tax debt temporarily if taxpayers are unable to pay any amount of tax debt. To grant a CNC status, the IRS considers the income, expenditures, assets and equity of the applicant. If the tax debt can be fulfilled even partially by any other means such as a loan or by selling assets, the IRS may ask the taxpayer to try resolving the tax debt through Offer in Compromise or Partial Payment Installment Agreement.
Only taxpayers that are in an economic hardship can hope to achieve the status of Currently Not Collectible. An economic hardship is judged by whether the basic necessities of life such as lodging, food, transport, child support and clothing are being met. If payment of the tax debt forces a taxpayer to live without certain basic living needs, the IRS is most likely to postpone payment of the tax debt under CNC.
The IRS must stop all collection activities after granting the Currently Not Collectible status. Although the taxpayer under CNC is not in danger of collection actions by the IRS, the penalties and interest on the tax debt to be paid continue to accumulate. If the IRS sees improvement in the financial condition of the taxpayer under CNC, the agency will ask for the most payment the taxpayer can make to fulfill the tax debt.
If taxpayers cannot achieve a CNC status, they may consider tax debt reduction plans such as Offer in Compromise or Partial Payment Installment Agreement.
It is not only in cases of economic hardship that the IRS grants Currently Not Collectible. Other cases include:
- Expiration of the statutory period for collection
- Inability to locate the taxpayer
- Inability to contact a taxpayer
- Death of the debtor with no potential for collection
Taxpayers that genuinely cannot afford to pay any amount of tax debt should apply for Currently Not Collectible. To discourage taxpayers applying for attractive tax debt reduction and debt postponement plans, the IRS charges penalty for applying for a plan that a taxpayer clearly does not fulfill the requirements for.