IRS Currently NOt Collectible Status
What You Should Know
Currently Not Collectible (CNC) status is a little known, temporary (sometimes permanent) resolution to IRS back tax debts that many of M&M Financial’s clients benefit from. Although CNC can be difficult to attain, it is a viable option for many struggling, delinquent taxpayers. If you successfully negotiate this resolution with the IRS, you will not have to make payments toward your back taxes if you remain current and compliant with your ongoing tax responsibilities, and your financial condition doesn’t change. The first step in reaching CNC status is being aware that it exists and how to get it. Many tax professionals who “specialize” in tax resolution don’t know much about it.
In any event, an individual taxpayer may be placed into CNC status for several reasons, including hardship. The Internal Revenue Manual (IRM) states that an individual account may be reported CNC if:
"collection of the liability would create a hardship for taxpayers by leaving them unable to meet necessary living expenses.” - IRM 22.214.171.124
What Is the First Step to Qualify for IRS Uncollectible Status?
Gaining tax compliance and remaining current with tax responsibilities is imperative for both businesses and individuals seeking a resolution to their IRS tax debts, including CNC. Compliance also includes filing all necessary tax returns. The IRS always wants to make sure no new liabilities will accrue before allowing a delinquent taxpayer into a resolution to satisfy back-taxes.
The 2nd step is showing the IRS that you don’t have the ability to make payments toward your tax liabilities. For a business with employees this can be tricky.
Will the IRS Consider My Business Payroll Tax Liability for CNC Status?
It is much more difficult to secure CNC status for a tax delinquent business. However, IRM 126.96.36.199 states that a corporate account may be reported CNC if the company “remains in business and is current but is unable to pay back taxes.” The M&M client resolution shown here was secured for a business client from Hilo, HI that has a 941-payroll tax liability totaling approximately $75,000. Although difficult to achieve, M&M has been very successful in reaching this resolution for its business clients that qualify.
Check out more M&M CNC success stories
The hard part for a business with a payroll tax debt is to show the IRS that the company can maintain current tax deposits, but can’t make payments toward the arrearage. If you show that you can’t maintain tax compliance, the IRS may consider shutting down your business. If you show that you have money left over at the end of each month, the IRS is going to want it. It’s a fine line to walk.
There are other important points to remember about CNC status, such as:
- IRS’ standard procedure is to file a tax lien on all accounts being reported CNC
- CNC status is most often a temporary solution, lasting up to 24 months
- Penalties and interest will continue to accrue while your account is in Uncollectible status
- CNC status will not toll the Collection Statute Expiration Date (CSED)