CTRS Currently Not Collectible Status and Financial Hardship 1 — Questions and Answers
Question 1: What does 'Currently Not Collectible' (CNC) status mean for a taxpayer with an outstanding IRS debt?
- The tax debt is permanently forgiven and removed from IRS records
- The IRS temporarily suspends active collection actions because the taxpayer cannot pay without suffering financial hardship (Correct answer)
- The taxpayer is placed on an installment agreement with zero monthly payments
- The IRS files a Notice of Federal Tax Lien and waits for the taxpayer's financial situation to improve
Correct answer: The IRS temporarily suspends active collection actions because the taxpayer cannot pay without suffering financial hardship
CNC status means the IRS acknowledges the taxpayer cannot pay without undue hardship and temporarily suspends enforced collection, though the debt remains and interest continues to accrue.
Question 2: Which IRS Collection Information Statement is used for wage earners and self-employed individuals when requesting Currently Not Collectible status?
- Form 433-A (Correct answer)
- Form 656
- Form 9465
- Form 12153
Correct answer: Form 433-A
Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals) documents the taxpayer's assets, liabilities, income, and expenses needed to evaluate CNC eligibility.
Question 3: What happens to the 10-year Collection Statute Expiration Date (CSED) while a taxpayer is in Currently Not Collectible status?
- The CSED is extended by the length of time the account is in CNC status
- The CSED is permanently tolled until the taxpayer's income increases
- The CSED continues to run normally during CNC status (Correct answer)
- The CSED resets to a new 10-year period when CNC status is granted
Correct answer: The CSED continues to run normally during CNC status
Unlike some other collection alternatives, CNC status does not toll or extend the CSED; the 10-year collection statute continues to run, which can benefit the taxpayer.
Question 4: What is the primary IRS standard used to evaluate allowable living expenses when determining a taxpayer's eligibility for Currently Not Collectible status?
- The Federal Poverty Guidelines published annually by HHS
- The National and Local Financial Standards published by the IRS (Correct answer)
- The Consumer Price Index for urban wage earners
- The taxpayer's actual documented expenses without limitation
Correct answer: The National and Local Financial Standards published by the IRS
The IRS uses National and Local Financial Standards (Collection Financial Standards) to determine reasonable allowable expenses; amounts exceeding these standards generally require documentation to be accepted.
Question 5: Which of the following best describes what occurs to tax refunds while a taxpayer is in Currently Not Collectible status?
- Refunds are issued in full to the taxpayer since collection is suspended
- Refunds are held in escrow by the IRS until CNC status is lifted
- Refunds are applied to the outstanding tax debt through the Treasury Offset Program (Correct answer)
- Refunds are split equally between the taxpayer and the outstanding balance
Correct answer: Refunds are applied to the outstanding tax debt through the Treasury Offset Program
Even during CNC status, the IRS will intercept any tax refunds through the Treasury Offset Program and apply them to the outstanding tax liability.
Question 6: A taxpayer's gross monthly income is $2,800 and their IRS-allowed monthly expenses total $3,100. Which collection resolution option does this scenario most directly support?
- Installment Agreement — Partial Pay
- Currently Not Collectible status (Correct answer)
- Offer in Compromise — Doubt as to Collectibility
- Penalty Abatement — First Time Abatement
Correct answer: Currently Not Collectible status
When a taxpayer's allowable expenses exceed their income, resulting in negative or zero monthly disposable income, CNC status is the most appropriate resolution because there is nothing left to pay.
Question 7: Under which Internal Revenue Code section does the IRS derive authority to suspend collection actions based on a taxpayer's financial hardship?
- IRC Section 6343 (Correct answer)
- IRC Section 6331
- IRC Section 7122
- IRC Section 6159
Correct answer: IRC Section 6343
IRC Section 6343 authorizes the IRS to release levies and suspend collection when collection would create economic hardship for the taxpayer.
CTRS Currently Not Collectible Status and Financial Hardship 1
What does 'Currently Not Collectible' (CNC) status mean for a taxpayer with an outstanding IRS debt?