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BACK TAXES AND TAX DEBT

When does payment deferral, or Currently Not Collectible status, end with the IRS?

Jim Buttonow, CPA, CITP

SVP Post-Filing Tax Services

Updated on: July 12, 2022

If you can’t pay your taxes, the IRS can put you in currently not collectible status (CNC or Status 53). This means that you can’t pay now, but you may be able to pay later.

The question for most people with this status is, “When will the IRS ask me to start paying again?”

In other words, does CNC status last forever? The answer lies in how the IRS put you into CNC status.

The IRS will review hardship and unable to locate CNC status every year for individuals

If you are an individual taxpayer (Form 1040 filer), the IRS can put you in CNC status for several reasons:

  1. Hardship CNC status. You sent the IRS Form 433A or 433F and supporting documents to prove that your basic living expenses as allowed by the IRS are more than your income.
  2. Unable to locate CNC status. The IRS couldn’t find you or your assets and “defaulted” you into CNC status because there was little or no collection potential.

Let’s look at the first situation: Your documented living expenses are more than your income.

If the IRS eventually grants you CNC status after you provide extensive supporting documents for your income, expenses and assets, the IRS will review your status every year. The IRS will base its review on your total positive income (TPI). TPI is the gross income amount you report on your return (not just taxable amounts). Or, if you didn’t file a return, the IRS will look at the income that your employers, banks, etc, report to the IRS under your Social Security number.

What if you file a tax return and owe while you’re in CNC status?

The IRS may remove you from CNC status or roll your new balance into your CNC status.

If you got assigned CNC status in the past 12 months, IRS procedures generally will allow you to roll your new balance into your CNC status. If your new balance significantly increases the amount you owe, the IRS may want to investigate whether you still qualify for CNC status. When this happens, many people remind the IRS of the procedure that allows you to stay in CNC status for 12 months.

If you have obvious sources of new reportable income and assets, expect the IRS to exit you from CNC status.

Watch next year’s income

If you are in CNC status, the IRS may ask you to pay again when your income is more than the expenses that you used to get into CNC status. CNC may last forever if your financial situation doesn’t improve. At the end of the IRS collection statute of limitations, the IRS will write off the balance owed.

The IRS doesn’t always remove you from CNC status if your circumstances improve. The IRS also considers its own resources. If the IRS doesn’t have the resources to collect, you may stay in CNC status for another year. How do you know? Ask the IRS about your status.

Do you have additional questions?

For help creating a strategy to address your tax issue, visit Jackson Hewitt’s Tax Resolution Hub to see how we can help.

About the Author

Jim Buttonow, CPA, CITP, is the Senior Vice President for Post-Filing Tax Services at Jackson Hewitt. He’s been a leader in helping taxpayers and tax professionals resolve tax problems with the IRS, where he had worked for 19 years in various compliance-enforcement positions. Prior to his current role, Jim’s consulting practice focused on the areas of tax controversy and tax administration, which included leading product development on tax problem software for tax professionals, testifying before Congress, advocating for IRS transparency and efficiency, and proposing innovative large-scale solutions for taxpayers and tax professionals. Jim is also the author of Tax Problems and Solutions Handbook, a publication aimed at helping tax pros work more effectively in post-filing matters and resolving their clients’ most common tax problems.

View Jim's LinkedIn Profile Jackson Hewitt Editorial Policy

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