There are several solutions to help you pay your tax debt, whether it is from back taxes or you owe more than you expected. However, some people have absolutely no way to pay anything towards their IRS debt. In this situation, you can apply for the Currently Not Collectible (CNC) status. This will alleviate your obligation to pay your tax debt for a period of time.
Currently Not Collectible is a special status designation by the IRS for those who cannot afford to pay any amount towards their tax liability. It is a difficult status to achieve and requires proof that you are under a significant financial hardship that limits your ability to pay anything towards your debt. It is a temporary status that changes once your financial situation improves.
Out of the various tax debt settlement options with the IRS, CNC is the one with the most stringent requirements. You must demonstrate that paying any amount of the debt, including any installment agreements, would create hardship and leave you unable to pay your necessary living expenses. Typically, a person also will have no assets, either due to a declaration of bankruptcy or the inability to have accumulated any. Other possible circumstances for receiving CNC status is death, failure to locate assets, problems locating the taxpayer, or some special circumstance, such as a fatal illness or deployed military personnel.
When you are accepted as a candidate for CNC status, the IRS will no longer perform any collection action, such as notices of intent, levies, tax liens, wage garnishment, or other such actions. You will be sent a statement each year that lists how much you owe. This is not a bill; it is merely an updated financial report that the IRS is required to send to you. While you are in Currently Not Collectible, the 10-year statute of limitations on your tax liability continues. It is possible that you will never have to pay your tax debt, depending on the circumstances.
If your financial situation improves while you are in CNC status, you will be obligated to pay off your tax debt. At that time, you may be able to negotiate another form of tax debt settlement, such as installment agreements or offer in compromise. You will also be liable for any interests, penalties, and other fees that have accrued on your debt while you have been Currently Not Collectible.
Filing for Currently Not Collectible status can help you if you are in a serious financial hardship with no ability to pay even the smallest amount of debt. However, it is not necessarily the best solution for everyone. The tax professionals at Fidelity Tax Relief will discuss all the tax relief solutions to find the one that best suits your situation. If CNC is the best solution, they will help you to fill out the forms and provide the proof to the IRS that you deserve to be designated with CNC status. If these are not filled out correctly, it could hurt your application or otherwise delay the process, which could lead to the IRS implementing a levy, lien, or wage garnish.