What is Currently Not Collectible status? Simply stated, being placed on currently not collectible status means that the IRS has agreed to stop attempts to collect back taxes. This happens after the IRS receives evidence that the taxpayer cannot pay the tax debt owed. That means it won’t garnish your wages or levy your bank accounts, and it won’t require that you set up an installment agreement
Currently not collectible status can provide time to get back on your feet and figure out a way to pay off the IRS without the immediate threat of collection activity. Your tax debt does not go away, though. You’ll still owe the past-due tax, and the balance will continue to accumulate interest and late penalties.
IRS currently non–collectible status generally lasts anywhere from six months to over two years. In order for the IRS to deem that a taxpayer account is non–collectible, the taxpayer must demonstrate a severe and apparent economic hardship.
The IRS may agree that you have a financial hardship (economic hardship) if you can show that you cannot pay or can barely pay your basic living expenses. For the IRS to determine you are in a hardship situation, the IRS will use its collection financial standards to determine allowable basic living expenses.
The IRS will hold onto any tax refunds you might be entitled to in future years until your balance is paid off. This process is referred to as a “refund offset.” The IRS might also file a Notice of Federal Tax Lien against your property, and this will show up on your credit report. It will put creditors on notice that you owe an outstanding balance to the IRS.
If you qualify, the IRS places a “closing code” on a taxpayer’s account when it approves someone for currently not collectible status. The code tells the IRS when to pull that taxpayer’s file for review to determine if their circumstances have changed. It correlates to annual income.
Ask the IRS what closing code they used when setting up your non-collectible status so you’ll know what income level will trigger follow-up from the IRS and when.
The amount of time you can remain in currently not collectible status is directly related to how much income you earn and how quickly your income situation improves.
One important thing about being considered for a CNC is that the IRS Statute of Limitations is still running for those back taxes owed. The statute of limitations lasts 10 years from the date the taxes are due. If they are not collected in this period, they can no longer collect on these amounts (with some exceptions).
