Taxpayers can seek the Currently Not Collectible (CNC) or Hardship Status when their financial condition leaves them with no money available to pay back taxes.

Qualifying taxpayers can often can delay IRS collection action for up to 18 to 24 months or longer. Even if you qualify for hardship status, it is not permanent and may last up to 24 months before the IRS reevaluates your status. The taxpayer will have to present financial disclosure forms to the IRS periodically.

Hardship status must be the result of special circumstances that exist where the collection potential for the collection of back taxes is unreasonable. Simply stated, your financial condition must be at the point where the payment of tax debt would cause you not to be able to meet your household expenses.

The IRS has strict guidelines as to what makes up household expenses. Examples of “special circumstances” that can lead to financial hardship and support a “Hardship Status” classification include:

  • Divorce, separation and spousal issues
  • Pregnancy, child rearing and special education needs
  • Consideration of qualifying tax dependents
  • Death in the family;
  • Physical and psychological health problems and disabilities;
  • Alcoholism, drug addictions, gambling problems;
  • Consideration of old age and retirement;
  • Job loss, industry recession, spouse working away from home;
  • Casualty losses (fire, accident, flood, storm etc.);
  • Stock market losses;
  • Increased housing costs;
  • Business losses;
  • Bankruptcy;
  • Imprisonment;
  • Military service;
  • Child support and alimony

Factors That May Prohibit Not Collectible Status

Owning significant liquid assets such as bank, money market or brokerage accounts, or a cash value life insurance policy can easily disqualify you from obtaining hardship status.

To keep hardship status, the taxpayer must remain in “current compliance” with IRS requirements. All tax returns must be filed, payroll withholding must be enough and estimated payments must be current.