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CNC status: What is it and how can it help resolve tax issues?

If you can't pay your taxes, you still have options.

You can set up an online payment plan, if you owe less than $50,000 (or $25,000 for businesses) and are current on your tax-filing obligations.

You could apply to pay in monthly installments, through an installment agreement. And if you can get the IRS to agree to an offer in compromise (OIC), you could resolve your tax debt for less than the full amount that you owe.

There is another option to be aware of, however, if you are experiencing financial hardship: CNC status. In this post, we will discuss currently-not-collectible tax debt. Let's do this in Q & A format.

When does CNC status apply?

You have to agree that you owe the taxes. But if you can't both pay taxes and meet your reasonable living expenses, you may be able to convince the IRS to classify your account as Currently Not Collectible (CNC).

Does CNC mean that the IRS can't collect?

Well, yes and no. It's true that when your account is in CNC status, the IRS generally holds off on collection actions, such as going after your property or your paycheck with a federal tax lien. But interest and penalties are still getting added to your debt. And the IRS is likely to grab any tax refund you might have otherwise received.

What kind of hoops do you have to jump through to get CNC status?

The main thing is that you've got to provide detailed financial data to the IRS. That information is needed so the IRS can determine the reasonable collection potential of what you owe.

How long does CNC status last?

It could end at any time, if your financial status changes. And the IRS generally has ten years to collect tax debt - and sometimes even more in certain circumstances. This can happen, for example, if you agree to allow the IRS to extend the period in order to obtain additional information.

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