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What is the IRS Non-Collectible status?

Simply put, being placed on presently non-collectible status implies that the IRS has decided to cease collecting unpaid taxes. This occurs once the IRS proves someone cannot pay the tax bill. Being placed on ‘currently not collectible’ status won’t limit any tax debt owed to the IRS, nor is it an attempt to settle tax debt. It is an alternative for taxpayers to be considered when they simply cannot afford to pay the IRS.

Introduction to IRS Currently Non-Collectible Status

Important to remember when you find yourself in a situation with significant tax debt is that it can be resolved in various ways. You have three options for paying back a tax debt: 

Firstly, you could create a payment schedule, make an offer in compromise, or make a complete payment. However, there are some instances in which the taxpayer would suffer an unjust economic burden regardless of the amount of money.

To address this temporary burden, the IRS established the IRS presently non-collectible status. The IRS and tax professionals may also refer to this as “CNC status” or “53ing an account” (the code that the IRS inserts into the account to put it in the IRS status of presently non-collectible).

The IRS effectively stops all collection action on an account by designating it as “currently non-collectible” status until it determines that the taxpayer is prepared to resume payments. IRS non-collectible status often lasts between six months to more than two years. 

What if my non-collectible status expires?

Let’s say you received a notice from the IRS about your tax burden. In that case, it means the IRS will review your revised information and determine if you can still not pay your IRS obligation while meeting your living expenditures. Before you call, ensure you have your income and expense information together. You can avoid future tax bills by modifying your withholding, making anticipated tax payments, or making Federal Tax Deposits.

The new Tax Reform implementation modified how the IRS calculates your federal tax. The IRS recommends that everyone complete a fast “paycheck inspection” to ensure the correct amount is withheld. If the IRS no longer finds a legitimate reason for the non-collectible status to remain, you will have to start making payments to the IRS. 

You may calculate your federal income tax and withholding using the IRS withholding calculator. A withholding calculator is a tool on IRS.gov that can help you estimate how much tax should be withheld from your paychecks in case your currently not collectible status is relieved.

How long will I have a currently not collectible status?

A currently ineligible status protects you from the IRS, prohibiting levies and collection enforcement. It compels the IRS to leave you alone in terms of demanding payment. 

If you supply them with a collection information statement showing that paying the IRS would cause you financial hardship, the IRS will consider your account to be currently uncollectible. In addition, the IRS is not allowed to cause any financial hardship, and there are multiple solutions the IRS tends to use to relieve these debt issues. 

To begin, the IRS requires that you file and pay all future taxes on time to remain uncollectible. That means that if you are self-employed and have previously struggled to save money to pay your taxes, you must do so to stay uncollectible. In some instances, your situation might change so drastically that the IRS ceases to refrain from collecting back taxes. Here are some examples:

  1. Income increases may suggest to the IRS that you are no longer in financial hardship. When the IRS determines that you are no longer protected by the presently not collectible status, they will evaluate your future tax filings and compare them to your income levels. If your income drastically increases, the IRS may contact you to seek a new tax return.
  2. When the IRS puts your account in presently not collectible status, they may designate a follow-up date for evaluating your account. If this happens, the IRS usually grants you two years as uncollectible till the follow-up date. When you are put in uncollectible status, the IRS typically marks your case for future review only if there is an indication that your capacity to pay may improve later. If, for example, you earned much more last year but had a drop this year and cannot make payments to the IRS, they may flag your case for subsequent assessment to see whether the hardship persists.
  3. The IRS has the authority to examine your uncollectible status for any reason. After all, you are a debtor, and they have the authority to assess whether your status has altered. Denying the IRS’ new collection information statement is a proven way to pique their interest and make them want it even more.

That being said, it is more the exception than the rule for the IRS to come back later and examine whether you should be kicked out of presently not collectible status. The most likely outcome is that you will fall behind on your future tax files and payments, which are entirely under your control.

Your status can keep the IRS away and lets you go about your life without worrying about IRS raids on your bank accounts, earnings, or property. It is a viable technique for resolving your IRS tax liability when paired with the expiration of the statute of limitations for collection. If you’re not eligible for the not collectible status, you might qualify for other tax programs with the IRS. For example, the IRS’s fresh start program offers different programs for taxpayers with significant debt. The tax professionals at Idealtax.com can help to get a part of your debt lifted in specific circumstances. Moreover, they know how to come to terms with the IRS and get you the best possible solution for your tax debt.