Choosing between paying for basic living necessities and satisfying a federal tax debt is an overwhelming reality for many taxpayers. No one should have to face this dilemma alone, yet countless individuals find their monthly income barely covering rent, utilities, and food. When every dollar is already committed to essential living expenses, nothing remains to satisfy the Internal Revenue Service (IRS).
Receiving an IRS collection notice often triggers immediate fear that wages or bank accounts will be seized, regardless of personal financial hardship. However, federal tax law includes provisions designed to protect taxpayers who truly cannot pay without sacrificing their ability to meet basic living needs.
If paying your back taxes would prevent you from covering essential expenses, you may qualify for protective relief known as Currently Not Collectible (CNC) status, which temporarily pauses IRS collection efforts while your financial situation stabilizes.
The IRS is systematic in its collection efforts, but it is bound by federal statutes that prevent it from collecting money that a taxpayer reasonably needs for survival. Financial hardship is a specific legal concept within the tax code, not just a feeling of stress.
When the IRS determines that a taxpayer has no “collection potential“, this means their equity in assets is negligible, and their income is consumed by allowable expenses; the agency must pause enforcement actions. Establishing this hardship, however, requires navigating complex financial disclosures and proving your case against IRS standards.
Ignoring the issue typically leads to an escalation of IRS enforcement actions. Without an approved resolution status like CNC in place, the IRS automated collection system (ACS) or a Revenue Officer may initiate:
Currently Not Collectible status, often referred to as “hardship status,” is a temporary designation used by the IRS when a taxpayer’s account is placed in a non-active collection status. It is defined in the Internal Revenue Manual (IRM) Part 5.
It functions as a pause button on collection activities. It signifies that while the tax debt is still legally owed, the government agrees that you cannot afford to pay it at this time. As long as your financial situation remains unchanged and you stay compliant with future tax filings, the IRS will not pursue collection actions.
It is vital to understand the scope and limitations of this status to avoid future surprises.
Unsure if your financial situation qualifies? Our team can review your details and advise on next steps.
Gaining approval for CNC status is not automatic; it requires a rigorous financial analysis. The IRS utilizes specific forms, typically the Collection Information Statement (Form 433-A or 433-F), to dissect your financial life.
The agency compares your actual expenses against “National and Local Standards“. These are standardized limits the IRS sets for housing, food, transportation, and medical care. If your actual expenses exceed these standards, the IRS may disallow them, calculating a theoretical “ability to pay” that does not match your real-world bank account.
The IRS evaluates these four primary categories to determine a taxpayer’s true ability to pay:
Compliance History: You must generally have all past tax returns filed to be considered for any resolution option.
One of the most critical risks in applying for Currently Not Collectible status is the submission of inaccurate or incomplete financial data. The IRS treats the Collection Information Statement as a roadmap to your assets.
If the financial disclosure is prepared incorrectly, it can inadvertently show that you can afford to pay, leading to a rejection of CNC status and a demand for an installment agreement that fits the IRS’s math, not your budget. Furthermore, revealing assets incorrectly can provide the IRS with the information they need to seize them.
Taxpayers attempting to negotiate hardship status without qualified legal guidance often encounter specific pitfalls:
CNC status is rarely the final step in a tax resolution case; it is a strategic holding pattern. It provides immediate relief and breathing room, allowing you to stabilize your finances without the threat of IRS enforcement actions.
However, because the 10-year Statute of Limitations on collection continues to run while you are in CNC, the tax liability may eventually become unenforceable upon the expiration of the statutory collection period, provided the status is maintained. For others, CNC bridges the gap until they qualify for a permanent settlement.
Depending on how your financial situation evolves, other resolution avenues may become appropriate:
Securing Currently Not Collectible status is a legal and financial negotiation, not a simple administrative request. Revenue Officers are trained to collect the maximum amount possible, not to advise you on how to protect your income.
Engaging a tax resolution attorney shifts the dynamic. It ensures that your financial data is presented accurately and consistently with applicable standards, ensuring your allowable expenses are fully recognized to reflect your true inability to pay.
Legal representation provides specific protections during the CNC application process:
At McCauley Law Offices, we take a comprehensive approach to IRS hardship cases. We do not merely forward forms to the IRS; we construct a detailed financial position designed to demonstrate your eligibility for financial hardship while protecting your long-term interests.
We follow a structured protocol to secure relief:
Contact McCauley Law Offices to arrange a confidential consultation and discuss your case.
Question | Answer |
How long does CNC status last? | CNC status is temporary, usually lasting about one year before the IRS reviews your financial situation again. If your income still does not allow payments, the status can continue. However, the tax debt remains until paid or legally expires. |
Can the IRS garnish my wages while in CNC? | No. Once the CNC status is approved, the IRS must stop wage garnishments and cannot issue new levies while the status remains active. |
Can the IRS still take my tax refund in CNC status? | Yes. Even in CNC status, the IRS will typically apply future federal tax refunds to your outstanding tax debt until the balance is resolved or expires. |
Will the CNC status ruin my credit? | CNC status itself is not reported to credit bureaus. However, if the IRS files a federal tax lien, it becomes public record and can negatively affect credit and property transactions. |
What income qualifies for CNC status? | There is no fixed income limit. Qualification depends on whether your allowable living expenses exceed your income under IRS standards, leaving no realistic ability to make payments. |
How do I apply for Currently Not Collectible status? | You must submit a financial disclosure to the IRS, usually Form 433-A or 433-F, with proof of income and expenses. The IRS reviews this information to determine if financial hardship exists. |
The challenges of selling a house became apparent to a taxpayer when they discovered an outstanding federal tax lien just before the closing. With insufficient equity to cover the tax liabilities, negotiations with the IRS proved fruitless, leading to the unfortunate loss of the buyer. Desperate for a resolution, the taxpayer reached out to our firm. We promptly recognized the need for a federal tax lien discharge and skillfully pursued it with the IRS. The successful discharge enabled the taxpayer to sell the property with a clear title, saving them from financial distress.
