Tax Lien Filing When Your Account Is Placed in CNC

Clients are often confused when CNC approval and a lien notice arrive close together. "I thought they agreed I can't pay. Why are they filing a lien?" The answer is that from the IRS's point of view, CNC is exactly when a lien makes the most sense. The IRS is standing down on collection, so it protects its position.

The statutory lien already exists

A federal tax lien does not start when the IRS files a document. Under IRC 6321, if a person liable for tax "neglects or refuses to pay the same after demand," the amount, including interest and penalties, "shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person."

IRM 5.12.2.1 explains the difference. The statutory lien arises by law. A Notice of Federal Tax Lien, or NFTL, is "a document filed with state and local jurisdictional recording offices to alert the public of the lien's existence." The notice lets the lien compete with other creditors. Without a filed notice, the IRM says, a holder of a security interest, a mechanic's lienor, or a judgment lien creditor "will have priority over the federal tax lien." With one, the tax lien "will generally have priority to a taxpayer's after-acquired property."

The $10,000 rule for CNC accounts

Three parts of the IRM say the same thing:

• IRM 5.16.1.2: "In general, a Notice of Federal Tax Lien (NFTL) should be filed on accounts being reported CNC when the aggregate unpaid balance of assessments equals or exceeds $10,000.00."
• IRM 5.12.2.6, the lien filing criteria, lists as a filing situation: "an open account with an aggregate UBA of $10,000 or more is being reported as currently not collectible."
• IRM 5.19.17.2, for campus and ACS cases: an NFTL determination "must be made on accounts being reported CNC when the Aggregate Assessed Balance (AAB), including accounts previously reported CNC equals or exceeds $10,000."

Notice the campus wording: the balance includes accounts previously reported CNC. Old CNC balances count toward the threshold.

Below $10,000

IRM 5.12.2.6 says that generally NFTLs will not be filed when the unpaid balance is less than $10,000, though they may be filed "if they will protect the government's interest, such as in the case of an impending bankruptcy or other exigent circumstances." And except in rare circumstances, an NFTL should not be filed when the balance to be shown on it is less than $2,500.

For campus CNC closures under exception criteria, IRM 5.19.17 says that in general a lien determination is not required.

Combined CNC cases with unassessed periods

IRM 5.12.2.6 also addresses a case involving "both assessed and unassessed periods" that will be reported CNC. The lien filing may be delayed "to include both period types on the NFTL," or filed on current assessments with a later filing when the unassessed periods are assessed.

How you will be told

In campus and ACS cases, the IRS sends Letter 4624-C, Case Closed, Currently Not Collectible; Lien Filing Notification on Currently Not Collectible. The campus procedures in IRM 5.19.17 say to "Include NFTL paragraph when applicable" and, if an NFTL is required, "hold for 30 days from the date of the letter prior to forwarding to the Centralized Lien Operation."

That 30-day window is useful. It gives you time to raise concerns before the notice is filed.

Your appeal rights

You have two distinct rights, at two different times:

• Before filing: the Collection Appeals Program. IRM 5.12.2.2 says that if the taxpayer disagrees with the proposed filing, the employee should "advise the taxpayer of their right to appeal under the Collection Appeals Program (CAP)." IRM 5.19.17.2 says the same for campus CNC cases.
• After filing: a Collection Due Process hearing. The same IRM section says to explain "their right to request a Collection Due Process (CDP) hearing under IRC 6320 once the notice has been filed." IRM 5.16.1.2 notes that if a taxpayer requests a CDP or CAP hearing about the NFTL filed on a CNC account, the case goes to Appeals.

Keep in mind that a CDP hearing request suspends the collection statute while it runs. If your strategy depends on the statute expiring, weigh that before requesting a hearing. See CNC and the collection statute.

Arguments against filing

The IRM makes clear that a lien's effect on credit "alone is not sufficient reason to withhold filing the NFTL." Embarrassment is not enough either. But IRM 5.12.2.4 lists considerations for not filing or deferring, including a collateral agreement, and situations where filing would hamper collection, such as a taxpayer close to closing on a refinance that will pay the tax, where the lien would block the loan.

In a true hardship case, those arguments rarely apply, because there is usually no refinance or sale that would pay the tax. The realistic goal is often managing the lien rather than preventing it: understanding its effect on property, and knowing the tools for discharging specific property or subordinating the lien when you need to sell or refinance later.

Refiling

A filed notice has a limited life and must be refiled to remain effective beyond it. IRM 5.16.1.6 lists "Cases that require a NFTL refile" as one of the reasons a revenue officer may set a mandatory follow-up on a CNC account. If your account sits in CNC for a long time, a refiled notice may appear years later. That is the IRS maintaining its position, not a sign that collection has restarted.

Joint balances and separate CNC requests

When spouses owe jointly and only one of them qualifies for CNC, the IRS can treat them separately. IRM 5.16.1.3.2 covers assessments against two or more taxpayers, with procedures for mirroring a joint liability so each spouse's collection can be handled on its own terms, and a subsection specifically addressing an NFTL on mirrored tax periods. If you are separated or divorced and your former spouse is the one with income or assets, ask about this. A lien determination on your account does not have to track your former spouse's circumstances.

What a lien does not do

A filed notice is not a levy. It does not take money from your bank account or your paycheck. It does not mean a revenue officer is about to seize your house. In a CNC case, enforced collection is suspended. The notice protects the government's priority; it does not restart collection. People conflate the two all the time, and the confusion causes needless panic.

It is also not a finding that you did anything wrong. It is the standard IRS response to an unpaid balance of a certain size that is not being paid down.

What the lien means day to day

For many CNC taxpayers, a filed lien changes little day to day. It matters when you try to sell or borrow against property. It also attaches to property you acquire later, such as an inheritance. If you expect a significant asset to come your way, talk to someone before it arrives.

If a lien has been filed and you later pay the balance in full, or the collection statute expires, the lien is released. Keep that in mind when you plan for the end of a CNC case. The paperwork that follows the debt eventually follows it out the door.

CNC and the lien are two halves of the same IRS decision: we will not collect now, but we are not letting go. Plan with both halves in mind.