What It Means to Temporarily Delay IRS Collections After Receiving a Tax Notice

Many IRS notices talk about applying for a temporary delay in collection efforts.

Unfortunately, this phrase can be misleading. A temporary delay in collection efforts simply means the IRS will re-evaluate your ability to pay. You might qualify for currently not collectible (CNC) status, which will provide temporary relief from your tax debt, but it isn’t your only option.

Learn more about CNC status, what the IRS means by “financial hardship” and “temporary delay in collections”, and alternative tax debt solutions below. If your case needs more personalized attention, our tax professionals here at 20/20 Tax Resolution are prepared to help with a free consultation.

What Does the IRS Mean by “Temporary Delay of Collection”?

If you’ve recently received CP14, CP501, CP504, or a similar IRS letter that mentions applying for a “temporary delay of collection”, you’re probably wondering what this phrase means. A temporary delay in collections refers to the IRS’s currently not-collectible program or CNC status.

Taxpayers are granted this status based on their ability to pay and overall economic condition. CNC status does not erase tax debt, and it doesn’t mean the IRS will ignore your debt. Instead, it simply means that the IRS has looked over your situation and determined that making payments would create an undue financial hardship on you and your family, so they’ve decided to classify you under CNC status and delay collections.

To get a temporary delay in collections (aka CNC status), you must contact the IRS directly.

Who Qualifies for CNC or a Temporary Collection Delay?

To qualify for CNC status, taxpayers first need to file any past due tax returns. They also need to provide financial details, proving that they can’t afford to pay. This typically includes documentation of your income, your expenses, current medical costs, proof of a recent job loss, proof of disability, and/or proof of the number of dependents you have in your household.

Generally, you must complete IRS Form 433-A to help the tax agency get a complete picture of your available income, expenses, and financial situation.

The IRS will take in all the information you provide and consider your economic circumstances. Agents routinely ask for additional proof and documentation to highlight your claims. This could include recent utility bills, pay stubs, rent bills, or bank statements. Depending on how much you owe, the IRS may also verify the information on your application by checking public records to see if you own any assets.

If the IRS determines that you can’t pay your tax debt balance, even in monthly installments, without experiencing a significant financial hardship, then you might qualify for CNC status.

What is financial hardship?

Under the IRS rules, a financial hardship is defined as struggling to afford necessary basic living expenses that are paramount to the health and well-being of the individual and their dependents. The IRS doesn’t want people to prioritize their tax debts over basic living expenses.

Can businesses get CNC status?

Yes, although it’s difficult, an experienced tax professional may be able to secure CNC status for a business. To get approved, you’ll need to provide extensive financial details about your business.

Pros and Cons of Temporary Delay in Collections

The biggest advantage of utilizing CNC status to temporarily delay IRS collections is that it will immediately pause any ongoing garnishments or bank account levies. If you’re struggling to afford basic living expenses due to the IRS’s collection actions, then understand that you can take immediate action to ensure you get the relief you need right away.

Here are the disadvantages of CNC status:

• Temporary – This solution will quickly evaporate if your financial situation changes.
• Financial reevaluations – The IRS can re-evaluate your finances at any point, and they may remove your CNC status if they believe you can afford to start making payments.
• Resumption of collection actions – As soon as CNC status is removed, the IRS can once again initiate collection efforts like garnishing your wages.
• Interest and penalties – Another huge disadvantage is that interest and penalties will accrue the entire time you’re in CNC status. When your payments resume later, you might find that your balance has significantly grown.
• Tax liens – Generally, the IRS files a tax lien against you while you’re on CNC status.
• Not available for businesses – If your business wants to continue operating, you will need to find another solution for your tax debt. Talk with a tax pro for options.

How the 10-Year Collection Statute Affects CNC Status

When you owe a debt to the IRS, it might surprise you to learn that the agency has a time limit to seek payment of that debt. In general, the statute of limitations on a tax debt is 10 years from the date it is assessed. Once the ten-year date passes, the IRS forfeits any legal right to pursue collection on that debt.

This collection statute of limitations (CSED) is extremely relevant if you’re in CNC status. While you are in CNC status, the CSED clock continues to click, meaning it is not paused and may work to your advantage. If your account is marked as non-collectible until the CSED, any tax debt remaining after that point will not be collectible, and you will not have to pay it.

However, it’s very likely that your case will get re-evaluated towards the end of the ten-year period if you’re still in CNC status. If your financial situation has changed significantly, then it’s possible the IRS will make a final move to collect what you owe.

CNC Isn’t for Everyone: Other Options to Consider

The IRS will only grant CNC status to individuals in genuine need. If the IRS determines that you have an ability to pay, even if that amount is very minor, then they will deny your application and recommend other options instead such as:

• Installment agreement (IA) – make monthly payments to the IRS until your tax debt is paid in full.
• Partial payment installment agreement (PPIA) – A PPIA allows you to pay a monthly installment based on your ability to pay rather than your total overdue balance. Any tax debt remaining when the CSED hits gets waived.
• Offer in compromise (OIC) – This type of plan will allow you to make a lump sum payment that’s less than the full amount that you owe.

If you’re not sure which option is right for your situation, consult with an experienced tax professional today.

When to Seek Help from a Tax Professional

If you owe the IRS a significant amount in past due tax debt and you’re starting to receive collection letters, then seeking the help of a tax professional is a great way to get a clear understanding of your rights and options.

A tax professional will go over all your options with you and ask questions about your financial situation to evaluate which option would be most beneficial for you. The right tax expert will also ensure your rights are upheld throughout the entire process, especially if negotiations are necessary.

Another huge advantage of seeking the help of a tax professional is that an expert will minimize any unnecessary penalties, levies, or delays in your tax case. Unfortunately, the IRS will deny your CNC application if the paperwork is done incorrectly or they do not receive the proper documentation to back up your claims. To protect yourself, consider working with a tax professional who can guide you through the application process.

Hiring a tax professional is also beneficial when you’re struggling to fully present your tax situation clearly to the IRS due to complex financial situations, earning an irregular income, having multiple streams of income, being self-employed, having expenses that exceed the IRS’s financial standards, or other unique situations. 20/20 Tax Resolution is an excellent resource for taxpayers looking to find long-term solutions to IRS tax issues.

Temporary Relief Versus Establishing a Long-Term Plan

In a nutshell, the IRS uses common phrases like “temporarily delaying” or “pausing your collections” to explain applying for CNC status. This is a valid option for you if you’re an individual. Businesses do not have the option of filing for this status.

This temporary relief isn’t always an ideal long-term strategy for handling your debt, though, because your overdue balance won’t disappear. If your financial situation improves, the IRS can demand payment in full. So, if you anticipate that you might be able to afford to pay the tax debt in the future, you may want to consider your long-term options.

To determine your best option, it might make the most sense to get in touch with a tax professional who can review your unique circumstances and economic situation with you.

Frequently Asked Questions

Do you have more questions about currently not-collectible status, your overdue tax balance, or dealing with the IRS? Below, we’ll go over some basic answers to some of the most frequently asked questions, but it’s always best to get personalized tax advice from a professional who can carefully consider your unique circumstances.

When will the IRS revoke CNC status?

The IRS has the right to revoke CNC status and resume collection efforts if the agency determines that your financial situation has shifted enough to where you should be able to afford to pay off some of your tax debt.

A few situations that could make the IRS revoke CNC status are if your income significantly increased, your hardship situation has passed, or you’ve recently acquired a lump sum or windfall of money.

Do I have to alert the IRS if my financial status changes?

No, you do not need to update the IRS if your finances, but if they ask, you may need to provide them with the requested paperwork so that they can determine if your situation has improved.

How Does the IRS Check Financial Status When You’re on CNC Status?

The IRS may monitor the income reported on your tax return, and if it goes over a certain amount, then they may revoke your CNC status. In other cases, the agency may send you a collection information statement (for example, a 433-A or 433-F) to check your financial status.

Does CNC status apply to future tax debt?

One of the most important things to know about CNC status is that it comes with specific requirements – in particular, you must continue filing and paying your future tax returns on time. If you fail to do this, then the IRS can immediately revoke your CNC status. If you’re still in genuine need, then the agency will likely review your situation again to consider how to move forward.

Can the IRS file a federal tax lien during a temporary delay?

Yes. During a temporary delay and while the IRS is reviewing your ability to pay, the tax agency may decide to file a notice of a federal tax lien. This step helps protect the government’s interest in your assets because it gives the tax agency a legal claim to the value of your property if you don’t pay what you owe. This lien attaches to all your assets, including your home. It can also limit your ability to secure new lines of credit.

What happens if I obtain an expensive asset and I’m under CNC status?

If you obtain an expensive asset while you’re under CNC status, the federal tax lien will automatically attach to that asset. That means if you sell the asset, the IRS will be entitled to a cut of the proceeds (up to the amount of your tax debt, including interest and penalties). When the IRS finds out about the asset, they may revoke your CNC status and demand that you pay. If you don’t, you risk the IRS pursuing a tax levy and seizing that asset.

Get Help Dealing With IRS Tax Debt Today

Do you think you might qualify for currently-not-collectible status? Are you going over all your alternatives and seeking to determine your best option? Here at 20/20 Tax Resolution, our team of tax professionals can help you protect your finances and peace of mind by determining a solid solution to your tax woes.

Contact us now to get started on your tax resolution journey today.