Currently not collectible status: When does seeking it make sense?

One of the themes of this blog is that even if you have tax debt, you still have options.

In some cases, it may be possible to work out an offer in compromise (OIC) to settle your delinquent taxes for less than the full amount owed. In other cases, payment of the debt in monthly installments may be in order.

But what if you are turned down for an OIC or cannot afford to make monthly payments because of financial hardship? In that situation, you could seek something called currently not collectible (CNC) status. In this post, we address the question of when it may make sense to do that.

In effect, CNC status is hardship status. It means you acknowledge the tax debt, but aren’t able to pay on it for the time being. If your account is placed in this status, the IRS generally refrains from debt collection actions, such as wage garnishment or levying on your assets. You may even get the IRS to release liens it has already imposed.

CNC status is not a totally free lunch. You will still be charged for interest and penalties. You will also have to be prepared to provide financial documentation to the IRS to show that you can’t afford to make payments on your tax debt while still having enough money for reasonable living expenses.

But if you don’t qualify for an OIC or an installment agreement, seeking CNC status may be the right option for you to pursue. Once granted, CNC can potentially extend until the time that the IRS is allowed to collect the debt has run out.

Keep in mind, however, that the IRS may do a yearly review of what your income is. And in some cases the collections limitation period may be extended. A knowledgeable tax attorney can advise you on these issues and guide you in taking steps that make sense for your situation.