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How does “currently not collectible” status work for the IRS?

On Behalf of | Nov 12, 2021 | Uncategorized |

Texas residents may not have to pay state taxes, but they could receive a significant bill from the Internal Revenue Service for federal taxes. Not everyone understands tax law or their responsibilities to pay their federal obligations, so they may amass substantial tax debt that they cannot pay. Others might suffer unexpected financial losses but still owe heavy tax burdens. Seeking a reprieve through “currently not collectible” status might provide a temporary solution.

“Currently not collectible” and tax debt

Currently not collectible, or CNC, refers to an agreement to defer payment temporarily. As the name suggests, the IRS is not taking action to collect the debt at present. Usually, people who owe money to the IRS will set up an installment agreement payment plan or work out an offer in compromise. Certain taxpayers might not have the funds at present to do anything, so CNC status makes sense for them.

For example, someone could be out of work and relying on a minimal unemployment check. The person might be borrowing significant sums of money to make ends meet as well. While the person’s financial situation may improve in the future, the current scenario reflects severe financial hardships. Therefore, the individual seeks a moratorium on the tax debt.

Qualifying for currently not collectible status

Anyone hoping for a CNC reprieve should expect to provide the IRS with proof of a currently challenging financial situation. Someone may feel that they are unable to pay, ignoring significant money stored in money market account for emergencies. The IRS may consider those funds available for tax obligations while understanding that some savings must cover living expenses.

Ultimately, an IRS representative will review financial information and expense details to make a decision. Those approved for CNC status will face an annual financial review as the IRS will likely remove the status once someone is able to pay.