What Currently Not Collectible Status Really Means

Plenty of people who owe the IRS are convinced it is about to take everything they own. Then the numbers come out, and it turns out they cannot pay rent and groceries, let alone a tax bill. That person does not need a payment plan they will default on in three months. They need the IRS to stop.

The IRS has a status for exactly that situation. It is called Currently Not Collectible, usually shortened to CNC. It is one of the most useful tools in collection work, and one of the most misunderstood.

The short definition

Currently Not Collectible is an administrative determination that the IRS should not pursue collection on an account right now. The Internal Revenue Manual chapter that governs it, IRM 5.16.1, says the IRS "balances the potential for collection against the costs and its ability to collect." When that balance tips against collection, the account can be reported uncollectible and removed from active inventory.

The authority comes from IRS Policy Statement 5-71. The hardship test, which is the version most individuals care about, rests in part on Treasury Regulation 301.6343-1(b)(4). That regulation describes economic hardship as a situation where collection would leave an individual "unable to pay his or her reasonable basic living expenses."

On the IRS computer system, a CNC account is coded with transaction code 530 and a closing code that explains why. That code matters more than most people realize, and I will come back to it.

The many kinds of CNC

Hardship is the best known reason for CNC, but it is not the only one. IRM 5.16.1.2 lists closing codes for situations such as:

• The IRS cannot locate the taxpayer or any assets (closing code 03).
• The IRS knows the address but cannot make contact and has no way to enforce collection (closing code 12).
• The taxpayer died and the estate has no collection potential (closing code 08).
• A corporation or LLC is defunct with no assets (closing code 10).
• Collection would create a hardship by leaving the taxpayer unable to meet necessary living expenses (closing codes 24 through 32).

This site focuses on the last category: hardship. Hardship closing codes can only be used for individual or joint individual assessments, sole proprietorships, partnerships where a general partner is personally liable, and LLCs where an individual owner is the liable taxpayer. A corporation cannot claim personal hardship. A person can.

What CNC does for you

When the IRS places a hardship account in CNC status, active collection on those balances stops. The revenue officer or the Automated Collection System closes the case. You should not be getting levy notices on those periods while the status holds.

CNC also connects to the levy release rules. Under IRC 6343(e), when the IRS agrees with a taxpayer that the tax is not collectible, it "shall release such levy as soon as practicable" on a levy against salary or wages. IRM 5.16.1.2.9 tells employees to make sure wage levies are released before an account is closed under a hardship code. If your paycheck is being garnished and you qualify for hardship, the garnishment has to come off.

There is a quieter benefit, too. The IRM states that the IRS has used its discretion to exclude debts that are CNC due to hardship from passport certification under IRC 7345, and that it will reverse a certification within 30 days if a certified taxpayer is later determined to be in hardship CNC. For someone who travels for work, that matters.

What CNC does not do

Here's the part most people miss. CNC does not forgive anything. The debt is still on the books. IRM 5.16.1.2.9 requires the IRS to advise taxpayers that "interest and penalties will continue to accrue on the account even though the collection action is suspended."

A few other things keep happening while you sit in CNC:

• The lien question. IRM 5.16.1.2 says a Notice of Federal Tax Lien generally should be filed on accounts reported CNC when the aggregate unpaid balance of assessments equals or exceeds $10,000. CNC and a filed lien often travel together.
• Refunds. The IRS keeps the authority to apply overpayments against what you owe. The CNC procedures include steps for flagging accounts for refund offset. Plan on future refunds going to the old balance.
• Review. Hardship CNC accounts are monitored. If your income rises above a threshold tied to your closing code, the account can come back to life. I cover that in detail in how CNC status gets reactivated.

And one thing that keeps happening works in your favor. The ten-year collection period under IRC 6502 keeps running. CNC is not on the IRM 5.1.19 list of actions that suspend the collection statute. More on that in CNC and the collection statute.

How the IRS decides

The IRS does not take your word for it. Generally, it wants a Collection Information Statement: Form 433-A in the field, or Form 433-F when you are dealing with the Automated Collection System or a campus unit. IRM 5.16.1.2 treats a statement as current if it is less than twelve months old.

The employee then runs the numbers under the Financial Analysis Handbook, IRM 5.15.1. Your gross monthly income goes on one side. Your allowable expenses go on the other. Allowable expenses are measured against the Collection Financial Standards, not against what you actually spend. If allowable expenses meet or exceed income, and you have no meaningful equity in assets, you are a hardship case.

IRM 5.16.1.2.9 puts it plainly: "An account should not be reported as CNC if the taxpayer has income or equity in assets, and enforced collection of the income or assets would not cause hardship." Equity is where many hardship requests die. A paid-off car or a home with equity changes the conversation, even when monthly income is thin.

Who has to approve it

CNC recommendations generally require the review and approval of the employee's immediate manager under IRM 5.16.1.5. The manager is supposed to check that the investigation was thorough and that a hardship condition really exists. The manager can also send it back with instructions, such as partial collection from available assets or consideration of an installment agreement or an offer in compromise.

There is an exception for smaller balances. Hardship and certain other closures below a threshold amount do not require managerial approval. The IRM redacts the exact dollar figure, so I will not guess at it here.

What the paperwork looks like when it is done

Field cases closed as hardship get Letter 4223, Case Closed, Currently Not Collectible. Campus and ACS cases get Letter 4624-C, which also carries lien filing language when a lien determination applies. Keep that letter. It is your proof that the IRS agreed you could not pay as of that date.

Is CNC the right move?

Sometimes it is the best outcome available. Sometimes it is a way station. IRM 5.16.1.2.9 tells IRS employees to discuss other options, including an offer in compromise, before reporting an account CNC. If your situation is permanent, such as a fixed retirement income that will never cover the debt, an offer may end the problem instead of pausing it. If your situation is temporary, CNC can hold the line until you are back on your feet.

The worst move is guessing. A collection information statement filled out carelessly can talk the IRS into a payment you cannot make or reveal equity you did not need to sacrifice. Get the numbers right before you submit anything.

If you want a broader overview of how my firm approaches hardship requests, the main firm site has a page on Currently Not Collectible status.

CNC will not make the debt disappear. It will make the IRS stop. For a lot of people, that is the difference between sleeping at night and not.