Many taxpayers struggle to pay their IRS tax debt while meeting their everyday living expenses. If you’re in that situation, you may be asking the following:
Currently Not Collectible (CNC) status is a valuable IRS provision that provides temporary relief to taxpayers experiencing financial hardship. When the IRS places an account in CNC status, it suspends most active collection efforts, including bank levies, wage garnishments, and property seizures. This allows taxpayers breathing room to stabilize their finances without the immediate pressure of aggressive collection actions.
While CNC status provides significant protection, it is not forgiveness. Interest and penalties generally continue to accrue on the outstanding tax debt. The IRS also reserves the right to periodically review the taxpayer’s financial situation and may remove CNC status if the taxpayer’s circumstances improve.
To obtain CNC status, taxpayers should demonstrate that paying the tax debt would create an economic hardship. The IRS typically requires detailed financial information, including income, expenses, assets, and liabilities, supported by documentation.
Most individuals apply for CNC status by submitting IRS Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals) or Form 433-F. Once the necessary documentation is prepared, the request can be submitted by phone or mail to the assigned IRS Collection representative.
Next, let’s understand whether U.S. expats living outside the U.S. may also qualify for CNC status and how it affects them.
If you are a U.S. citizen or resident living abroad and cannot afford to pay your federal tax debt, you may qualify for CNC status. The IRS recognizes that paying the debt would create a financial hardship in these situations.
The following are some of the temporary reliefs that the IRS may provide to you as a U.S. expat on CNC status.
If you qualify for Currently Not Collectible (CNC) status, the IRS will usually stop aggressive collection actions, such as levies, because paying would cause you financial hardship. But does that mean it stops the IRS from collecting the tax? Let’s understand it in the next section.
Being in Currently Not Collectible (CNC) status does not suspend the Collection Statute Expiration Date (CSED). The IRS typically has 10 years from the date a tax liability is assessed to collect the debt. Therefore, while CNC status halts the collection process, it does not pause the IRS’s countdown to collect the tax. This can be beneficial for the taxpayer.
Next, let’s determine whether a taxpayer living outside the U.S. may have a different Collection Statute Expiration Date (CSED) while on CNC status.
Taxpayers residing outside the United States often wonder how living abroad affects their Collection Statute Expiration Date (CSED) while on CNC status. In most cases, the CSED continues to run, but there is one key exception.
One important exception to the standard 10-year Collection Statute Expiration Date (CSED) occurs when you live outside the United States for 6 or more consecutive months.
In that case, the IRS pauses the 10-year clock while you are abroad and adds at least 6 more months after you return. This rule is important for CNC because living abroad can give the IRS extra time to collect the debt even while you are in CNC status. That’s why it’s good to know how much time is left on your CSED.
The Currently Not Collectible (CNC) status is generally determined by your financial situation, not by U.S. citizenship, green card status, or tax residency. Taxpayers, including non-U.S. citizens and nonresident aliens, may qualify if they demonstrate that paying the tax would prevent them from meeting necessary living expenses.
The IRS evaluates requests for CNC using standardized Collection Financial Standards and detailed financial information submitted on Form 433-F or Form 433-A. These standards apply to both domestic and international cases. The IRS has dedicated interim guidance for analyzing the finances of taxpayers residing or with assets abroad. This ensures fair evaluation of foreign income, expenses, and assets when determining CNC eligibility.
Collecting against foreign assets and income can be more complex for the IRS. While the U.S. has collection assistance provisions in some tax treaties, enforcement depends on the specific country of residence and the terms of the treaty.
It is crucial that a taxpayer files a request for CNC status in a proper and timely manner. This is especially true if the IRS is garnishing your wages, filing a lien, or placing a levy on your bank account.
If you are wondering whether to request CNC status, ask yourself the following questions:
To find out your eligibility, you can contact Arora Law PC today to discuss your options. Please call (551) 800-0007 or click here to schedule an appointment.