The term ‘currently not collectible,’ or CNC, means that the IRS cannot currently collect a debt from a taxpayer. For an account to be labeled as CNC, taxpayers must be unable to pay the debt or withdraw the amount from their assets or equity. Once an account is marked as noncollectable, collection attempts must come to a halt.
After an account has achieved a noncollectable status, the IRS may no longer pursue the debt. If a tax levy has been issued against the property, the action must be stopped. The IRS may not seize property from a person who has been labeled as noncollectable. Any garnishments that have been issued against an individual must also be lifted. Accounts that are placed under the CNC label are referred to as Status 53.
To qualify as CNC, a taxpayer must either submit IRS Form 433-F or Form 433-A. These forms are used to show the IRS that a person is unable to pay his or her tax debt. On these forms, taxpayers must list their income, assets and expenses. To achieve a Status 53, a person must not be able to liquidate his or her assets to repay the debt. To prove this, homeowners must usually submit paperwork proving that a lender is unwilling to refinance their home or fund a home equity loan.
Additionally, when considering daily living expenses, a person must not earn a large enough income to make monthly payments to the IRS. In short, a person must be reasonably unable to repay their tax debt to the IRS without putting themselves into further hardship. If a person can reasonably afford to pay the debt, he or she will be required to do so.
Once taxpayers have been placed under CNC status, they will maintain this status for at least one year. This does not mean that the debt is forgiven. Instead, it just gives the taxpayer additional time to come up with the funds. Each year, the IRS will evaluate the taxpayer’s tax returns to determine whether his or her financial situation has improved. As long as the individual’s situation has remained constant, the account will remain noncollectable. If an individual’s account keeps its noncollectable status until after the statute of limitations runs out, the IRS will be permanently unable to collect the debt. However, if the individual begins earning a higher income, the account will lose its noncollectable status.
Throughout the time an account is noncollectable, the tax debt will be accruing interest. Penalties are also added to a debt during this period. In many cases, a CNC is temporary. Eventually, taxpayers will be forced to repay their debt to the IRS. Many times, to permanently eliminate the debt, taxpayers file for an Offer in Compromise while their account is labeled as noncollectable. An Offer in Compromise is an offer to settle the debt with the IRS. Through this offer, taxpayers might be able to significantly reduce and settle their debt with the IRS.