Currently Not Collectible (CNC) Status: What It Means for IRS Tax Debt

Currently Not Collectible (CNC) status is an IRS designation that may apply when a taxpayer is experiencing financial hardship and cannot afford to make payments toward their tax debt without sacrificing basic living expenses. When an account is placed in CNC status, the IRS typically pauses active collection actions for a period of time.

CNC status does not erase tax debt, and it is not permanent. However, for taxpayers facing serious financial difficulty, it can provide temporary relief and breathing room while circumstances stabilize. This guide explains what CNC status is, how it works, eligibility basics, potential benefits and limitations, and how CNC fits into broader tax-resolution strategies.

What Does “Currently Not Collectible” Mean?

When the IRS determines that a taxpayer cannot reasonably pay their tax debt while meeting necessary living expenses, it may classify the account as Currently Not Collectible. This classification is often associated with hardship and is intended to pause collection when attempting to collect would create undue burden.

While in CNC, the IRS generally stops certain active collection actions. However, the tax debt remains, and the IRS may revisit the account later to determine whether the taxpayer’s financial situation has improved.

How CNC Status Differs from Other IRS Options

CNC status is not the same as a payment plan or a settlement. Unlike an IRS installment agreement, CNC does not typically require monthly payments. Unlike an Offer in Compromise, CNC does not reduce the tax balance owed.

CNC is often best viewed as a temporary hardship-based pause. Some taxpayers later transition from CNC into other options if their circumstances change.

Situations That May Support CNC Consideration

CNC may be considered when a taxpayer’s income is not sufficient to cover both the tax obligation and basic living expenses. Examples of hardship situations can include:

• Unemployment or significant reduction in income
• Serious illness, disability, or ongoing medical expenses
• Temporary hardship due to a major life event
• Fixed income that barely covers necessary expenses

The IRS evaluates hardship based on detailed information and typically requires a financial analysis.

How the IRS Evaluates Financial Hardship

To determine whether CNC is appropriate, the IRS generally reviews a taxpayer’s income, expenses, assets, and other financial details. The goal is to determine whether the taxpayer has “ability to pay” without being unable to meet basic living needs.

The IRS may use standardized guidelines for allowable expenses in categories such as housing, food, and transportation. The IRS may also evaluate asset equity (cash, bank balances, vehicles, real estate, and other holdings) to assess whether the taxpayer could pay through liquidation or borrowing.

What Happens When Your Account Is in CNC Status?

When the IRS places an account into CNC status, it generally pauses certain active collection actions, such as:

• Wage garnishments (in many cases)
• Bank levies (in many cases)
• Collection calls and payment demands (often reduced)

However, it’s important to understand what CNC does not do:

• It does not eliminate the tax debt.
• It does not necessarily stop interest and penalties from accruing.
• It does not guarantee that liens will not be filed.

Can the IRS Still File a Tax Lien During CNC?

CNC status does not automatically prevent the IRS from filing a federal tax lien. Depending on the balance owed and circumstances, the IRS may file a lien to protect its interest even while active collection is paused.

How Long Does CNC Status Last?

CNC is generally temporary. The IRS may review accounts periodically to see whether the taxpayer’s financial situation has changed. If income increases, expenses decrease, or assets become available, the IRS may remove CNC and request payment, propose an installment agreement, or discuss other options.

Does the IRS Collection Clock Keep Running?

The IRS generally has a limited period of time to collect tax debt, often referred to as the collection statute. CNC status does not erase the debt, but time in CNC may still count toward the overall collection period in many situations. Exact outcomes vary by case and timing.

Benefits of CNC Status

• Temporary pause of certain active collection actions during hardship
• No required monthly payment while CNC is in effect (in many cases)
• Time to stabilize finances and explore long-term options

Limitations and Potential Downsides

• The balance generally remains and may grow due to interest/penalties
• The IRS may revisit the account and remove CNC if finances improve
• A federal tax lien may still be filed depending on circumstances

How CNC Fits Into a Broader Tax Resolution Strategy

CNC status is often considered a “pause” rather than a permanent solution. Depending on the circumstances, a taxpayer might later transition to:

• An IRS installment agreement (payment plan)
• An Offer in Compromise (settlement in qualifying cases)
• Penalty abatement (potential penalty reduction in qualifying cases)

Common Misconceptions About CNC

• Myth: CNC means the IRS forgives your debt.
  Reality: CNC is typically a temporary pause; the debt remains.
• Myth: CNC is permanent.
  Reality: The IRS may periodically review and can remove CNC if finances improve.
• Myth: CNC stops all IRS actions.
  Reality: Certain actions, such as liens, may still occur.

Frequently Asked Questions