Tax debt can be resolved without payment in cases when a taxpayer has financial difficulty repaying any amount of tax debt. The IRS will require evidence of the financial hardship using Form 433-F, Collection Information Statement, before considering Currently Not Collectible (CNC) status.
The IRS reviews the financial information of the applicant, including all assets and income sources to judge the taxpayer’s capability to pay the tax debt. If the IRS determines, after a financial review, that the taxpayer has no assets, no ability to take a loan, or enough income from any source to pay their tax debt, they may accept the taxpayer into the Currently Not Collectible Program.
The basis for placing an account in Currently Not Collectible is financial hardship, meaning the taxpayer only has the financial capability to meet basic living expenses. However, the status may not be permanent. The IRS can remove a taxpayer from the program and require payment and begin the collection process if they find a taxpayer’s financial circumstances have improved. It is only after the expiration of the Statute of Limitations that the IRS loses the power to collect the tax debt.
When placed in Currently Not Collectible status, no payments are required. The IRS must stop all collection actions, and cannot initiate a collection action while a taxpayer is under CNC.
The Currently Not Collectible program may only be temporary and may not resolve tax debt permanently. The penalties and interest on a tax debt continues to accrue even when a taxpayer is in CNC. If a taxpayer’s financial capability increases, the amount of tax debt may have increased substantially due to penalties and interest.
Currently Not Collectible must only be explored by those who do not have the financial ability to pay any amount towards their tax debt without forcing themselves into a financial crisis. Taxpayers should be warned that applying for a tax debt resolution plan that they clearly do not qualify for will attract additional IRS penalties. Taxpayers should consult with a tax professional before applying for any IRS program, including CNC.