IRS Hardship Status

When you owe back taxes to the IRS but cannot pay due to financial hardship, the IRS offers a program called Currently Not Collectible (CNC) status that temporarily suspends collection activities. This hardship status provides relief for taxpayers facing genuine economic difficulty, allowing them to postpone payments until their financial situation improves. Understanding how to qualify and apply for this status can prevent aggressive collection actions like levies and wage garnishments.

In this article, we will explain what IRS hardship status means, how to demonstrate financial hardship to the IRS, the application process for CNC status, and what happens after you are placed in non-collectible status. We will also cover the difference between CNC status and other relief options such as Offers in Compromise and installment agreements.

Currently Not Collectible status is a designation the IRS places on a taxpayer account when it determines that the taxpayer cannot pay any portion of their tax debt due to financial hardship. While in CNC status, the IRS temporarily suspends all collection activities, including phone calls, letters, wage levies, and bank levies. However, interest and late-payment penalties continue to accrue on the outstanding balance during this period.

CNC status does not make the tax debt go away; it simply pauses collection efforts. The IRS periodically reviews CNC accounts to determine whether the taxpayer’s financial circumstances have improved. If the IRS determines that the taxpayer can now make payments, they may remove the CNC designation and resume collection activities.

To qualify for CNC status, you must demonstrate that your monthly living expenses exceed or completely absorb your monthly income, leaving no funds available to pay your tax debt. The IRS evaluates your financial situation using Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals) or Form 433-F (Collection Information Statement). These forms require detailed information about your income, assets, and monthly expenses.

The IRS applies national and local expense standards when reviewing your financial information. National standards cover food, clothing, housekeeping supplies, personal care products, and miscellaneous expenses. Local standards cover housing, utilities, and transportation based on where you live. If your allowable expenses equal or exceed your income after accounting for necessary living costs, the IRS will likely grant CNC status.

Applying for CNC status involves submitting financial documentation and requesting the designation through the IRS. You can initiate the process by calling the IRS at the number on your notice, visiting a local IRS Taxpayer Assistance Center, or working with a tax professional such as a CPA or Enrolled Agent who can represent you before the IRS. The IRS will review your financial information and make a determination based on your ability to pay.

Once granted, CNC status typically lasts for a specific review period, often six months to two years. During this time, you should keep your contact information current with the IRS and be prepared to provide updated financial information when requested. If your financial situation improves significantly, you must notify the IRS, as continuing to claim hardship when you can pay may result in penalties.

• CNC status temporarily suspends IRS collection activities but does not eliminate the tax debt; interest and penalties continue to accrue.
• To qualify, you must demonstrate that your monthly living expenses equal or exceed your income using Form 433-A or 433-F.
• The IRS applies national and local expense standards to evaluate your financial hardship claim.
• CNC status is periodically reviewed; you must update the IRS if your financial situation improves.
• Working with a tax professional can improve your chances of successfully obtaining CNC status and navigating the process.