How CNC Status Gets Reactivated, and How to Prepare for It

Picture a taxpayer who has been in CNC status for three years, gets a better job, and suddenly receives a balance due notice on taxes she thought were "handled." Nothing went wrong. CNC worked exactly as designed. It simply ended. If she had known how reactivation works, the notice would not have been a shock.

Two ways back into collection

IRM 5.16.1.6 describes two follow-up paths: systemic follow-up, which is automatic, and mandatory follow-up, which a revenue officer requests when closing the case. Most hardship accounts only face the first.

Systemic follow-up: your tax return is the trigger

IRM 5.16.1.2 says "Systemic follow-up is limited to hardship, unable to locate and unable to contact cases." For hardship, the trigger is income. IRM 5.16.1.6: "The systemic process for reactivating hardship CNC cases relies on an increase in Total Positive Income (TPI) above a predetermined amount based on the hardship closing code when the case is closed as CNC. The TPI is reviewed annually when a taxpayer files an income tax return."

The predetermined amount is the value of your closing code, from $20,000 for code 24 to $84,000 for code 32. See hardship closing codes 24 through 32.

The IRM's example is clear: allowable expenses of $22,000, closing code 25, no mandatory follow-up, and "The account will be reissued systemically when the taxpayer files a return with income of $28,000.00 or more."

Unable to locate and unable to contact cases reactivate differently, when a new levy source or, for unable to locate, a new address posts to the IRS system. That is not the hardship path, but it explains why moving or starting a new job can wake up an old account in those categories.

A built-in delay

The mandatory follow-up section of IRM 5.16.1.6 refers to "the 65 cycle suppression of reactivation built into the systemic follow-up program." In other words, reactivation is not instant after closure. The IRM lists situations where that delay "would prevent timely action" as a reason to request a mandatory follow-up instead. For most taxpayers, the practical point is that the first filed return after closure is not likely to snap the case back immediately.

Mandatory follow-up: a date on the calendar

Sometimes a revenue officer knows your situation will improve and sets a manual follow-up. IRM 5.16.1.6 says to request one "only when required or when there is a likelihood that revenue will be collected by taking the requested action," and "when there is evidence that the taxpayer's ability to pay will improve and either computer-generated reactivation is not available or the improvement will happen significantly sooner than systemic reactivation can occur."

The IRM lists circumstances where a mandatory follow-up is appropriate, including:

• An individual who will pay off a debt, creating positive cash flow for the tax.
• In-business employment tax cases where the taxpayer is still operating.
• Accounts where the primary taxpayer files as the secondary SSN on a joint return, so the systemic check would not catch an income increase.
• A defunct business expected to receive funds in the future.
• A seasonal worker whose tax would be collectible if contacted while working.
• A levy issued to attach retirement income or lawsuit proceeds the taxpayer is not yet eligible to receive.
• Cases that require a Notice of Federal Tax Lien refile.

The home equity example in IRM 5.16.1.6 is a good illustration: a couple with equity but an existing second mortgage, unable to qualify for a third, is reported CNC under code 27 "with a mandatory follow-up in twelve months" because the second mortgage will be paid off in ten.

When a follow-up should not be requested

The IRM also lists when employees should not request a mandatory follow-up. Among them:

• "To update and review a CIS on the chance that a taxpayer's financial condition will change."
• If follow-up would occur in less than 90 days; those cases stay in the revenue officer's inventory.
• To check filing compliance, verify installment payments or estimated tax payments, or determine refund offsets.
• If the aggregate balance with accruals is below a redacted threshold.

That first item matters. A revenue officer is not supposed to put a follow-up on your case simply because your situation might change someday.

Managers check follow-ups

Under IRM 5.16.1.5, when a mandatory follow-up is requested, "the manager must verify it meets the criteria in IRM 5.16.1.6." If you are told a follow-up is being set, it is fair to ask what the reason is and which IRM criterion it meets.

What happens when the account comes back

A reactivated account returns to the collection stream, usually starting with notices. You will be asked to pay, or to provide a new financial statement. Your options at that point are the same as before: full payment, an installment agreement, a partial pay agreement, an offer in compromise, or a new hardship determination if your expenses rose along with your income.

Do not ignore the notices. A reactivated account that goes unanswered can move to a levy notice just like any other balance.

How to prepare

• Know your closing code. Then you know the income level that will likely reopen the case.
• Keep filing. CNC does not excuse filing requirements, and new balances are their own problem.
• Stay current on new taxes. Adjust withholding or make estimated payments so the old balance is the only balance.
• Keep your records. If your income rose but so did necessary expenses, such as medical costs or a new child, you will need proof when you submit a new financial statement.
• Watch the calendar. The collection statute keeps running during CNC. If you are close to the end of the ten-year period, the strategy for a reactivated account changes. See CNC and the collection statute.

A reactivation is not a finding that you lied

Taxpayers sometimes treat a reactivated account as an accusation. It is not. Systemic reactivation is a computer comparing one number on your return to a threshold set years earlier. It does not account for a new medical bill, a second child, or a move to a county with higher housing costs. That is exactly why a new financial statement matters. If your expenses rose along with your income, the analysis may come out the same way it did before.

Respond to the first notice. Do not wait for the final notice of intent to levy. The earlier you engage, the more options you have, and the less likely a levy lands while you are still gathering paperwork.

Unfiled returns can stall the process

If your account comes back and you have fallen behind on filing, expect that to come up. The campus procedures in IRM 5.19.13.3 say not to input a financial statement where the taxpayer is not in filing compliance, though there is an exception when the taxpayer is in financial hardship and CNC is being considered. Even so, unfiled returns slow everything down. Stay current with filing during CNC, and a reactivation becomes a conversation instead of a crisis.

Changing the code after a follow-up

If a follow-up finds you still cannot pay, the account can stay in CNC with an updated code. IRM 5.16.1.6 says: "If the account remains in CNC after a follow-up, update the closing code to reflect current conditions." A new code means a new reactivation threshold based on your current allowed expenses.

CNC buys time. Use that time to get stable, stay compliant, and decide what the next resolution will be, so that when the IRS calls again, you are the one with a plan.