Currently Not Collectible

IRS Policy Statement 5-71 authorizes the Service to report an account as currently not collectible when collection would create a hardship. The standard comes from Treasury Regulation section 301.6343-1(b)(4), which defines economic hardship as a levy that leaves a taxpayer unable to pay reasonable basic living expenses.

Internal Revenue Code section 6343(e) backs this up on the enforcement side by requiring the IRS to release a wage levy once it agrees the tax is not collectible. The Tax Court applies the same regulatory test when it reviews a collection determination: in Plotkin v. Commissioner, T.C. Memo. 2023-125, the court described the status as available where a taxpayer has no apparent ability to make payments on the outstanding liability.

Galyean v. Commissioner, T.C. Memo. 2012-242, and Lipka v. Commissioner, T.C. Memo. 2022-116, both turned on whether the taxpayer's own numbers actually showed hardship under the regulation. What the status does not do is erase anything. The Tax Court put it plainly in Shenk v. Commissioner, T.C. Memo. 2015-193: a debt in Currently Not Collectible status is not forgiven or extinguished. This is a pause in enforcement, not a settlement.

How the IRS decides whether you qualify

The determination rests on a Collection Information Statement. Individual wage earners and self-employed taxpayers file Form 433-A. Businesses file Form 433-B. Form 433-F is the shorter version used mainly by the Automated Collection System on lower-balance accounts. Internal Revenue Manual 5.16.1.2.9 sets out the hardship procedures and ties the closing code the IRS assigns to the total living expenses it allowed you.

From there the analysis is arithmetic against published standards. The IRS Collection Financial Standards, governed by IRM 5.15.1, set National Standards for food, clothing, household supplies, and personal care, and Local Standards for housing, utilities, and transportation that vary by county and family size. These figures are updated annually. Subtract allowable living expenses from monthly income; if nothing is left, the account is a hardship candidate.

Two things trip taxpayers up. The first is assets: cash flow is only half the test, and a taxpayer with little monthly margin but meaningful equity in real estate or a retirement account is often steered toward an installment agreement or asked to borrow against the asset instead. The second is documentation. In Hodges v. Commissioner, T.C. Summ. Op. 2011-20, the Tax Court upheld a denial where the taxpayer simply had not produced the records the IRS asked for.

What Currently Not Collectible status does not stop

Interest keeps running. Under section 6601 it accrues at the federal short-term rate plus three percentage points and compounds daily for the entire period the account sits in hardship status. The failure-to-pay penalty under section 6651(a)(2) also continues at one-half of one percent per month until it reaches its 25 percent ceiling.

The IRS can still file a Notice of Federal Tax Lien. Shenk upheld a lien filed while the account was already in Currently Not Collectible status, and Serna v. Commissioner, T.C. Memo. 2022-66, confirmed that the status does not impinge on the government's right to protect its interest by recording a lien. A filed lien attaches to property, appears in the public record, and triggers your own Collection Due Process rights under section 6320.

Refunds are still taken. Section 6402 lets the IRS apply any overpayment on a later return against the outstanding balance, so a taxpayer in hardship status who overwithholds will see that money absorbed. The IRS also mails an annual balance-due reminder, which is not a collection action but does put the running total in front of you each year.

Currently Not Collectible and the ten-year collection statute

This is the part most taxpayers are never told, and it is often the whole reason the strategy works. Section 6502 gives the IRS ten years from the date of assessment to collect. Hardship status is not one of the events that suspends that clock. Time in Currently Not Collectible status counts toward the collection statute expiration date.

Compare that with an offer in compromise. Section 6331(k) prohibits levy while an offer is pending and suspends the collection period for that time plus an additional thirty days, so a taxpayer who spends a year in the offer process has effectively pushed the expiration date back by more than a year.

For someone seven or eight years into the collection period, running out the statute in hardship status can be worth considerably more than a settlement that restarts the clock. Calculating the actual expiration date requires pulling account transcripts and accounting for every prior suspension, which is not something the notices tell you.

Passport certification while in hardship status

Section 7345 requires the IRS to certify seriously delinquent tax debt to the State Department, which then generally declines to issue or renew a passport. The dollar threshold is adjusted annually for inflation. The statute's written exclusions cover taxpayers paying under an installment agreement or accepted offer, and taxpayers whose collection is suspended by a Collection Due Process request or innocent spouse claim.

Currently Not Collectible is not on that list, a point the Tax Court noted in Adams v. Commissioner, 160 T.C. No. 1, so relief for passport revocation comes instead from IRS policy.

Under IRM 5.16.1.2.9(17) the Service has exercised its discretion to exclude hardship CNC debts from certification, and it will reverse an existing certification and notify the State Department within thirty days once an account is determined not collectible due to hardship. The distinction matters in practice. Because decertification is administrative grace rather than a statutory entitlement, it depends on the account being coded correctly and on someone following up when it is not.

Rowen v. Commissioner, 156 T.C. No. 8, is also worth knowing: the IRS only certifies, and only the State Department acts on the certification, so the two agencies have to be handled separately when travel is time-sensitive.

How long the status lasts and what reopens the account

There is no fixed term. The IRS places a monitoring code on the account and reviews filed returns each year. Under IRM 5.16.1.2.9(14), reactivation is systemic: each hardship closing code carries a total positive income threshold, and when a later return shows income above that threshold the account returns to active collection automatically.

Two obligations continue throughout. File every return on time, and stay current on withholding or estimated payments, because a new unpaid balance will pull the account back into collection regardless of the income test. Accounts placed in hardship status for a business also generate a monitoring entry against the responsible individual, which surprises sole members and general partners who assumed the two files were separate.

Currently Not Collectible compared with an installment agreement or offer in compromise

These are the three collection alternatives, and they trade against each other differently depending on where you sit in the collection period. Hardship status is usually the strongest option for a taxpayer whose income has dropped, whose assets are thin, and who is deep into the collection period.

An offer in compromise fits better where the liability needs to be closed out permanently and there is enough time left on the statute to absorb the suspension. An installment agreement suits a taxpayer with real capacity to pay who simply needs terms.

If the IRS denies Currently Not Collectible status

A denial is reviewable. When the IRS files a lien or issues a final notice of intent to levy, sections 6320 and 6330 give you thirty days to request a Collection Due Process hearing with the Independent Office of Appeals. Hardship status is a collection alternative Appeals is required to consider under section 6330(c)(2)(A)(iii) and (c)(3)(B), which Serna and Plotkin both confirm.

If Appeals still says no, section 6330(d)(1) allows a petition to the Tax Court, which reviews the determination for abuse of discretion. The Collection Appeals Program is the faster route and can be used against a broader set of collection actions, but a CAP decision cannot be taken to court. Choosing between the two is a timing and leverage question, and picking the wrong one can forfeit judicial review.

In many cases the more productive answer is neither: Hodges shows how often these denials rest on an incomplete financial package that can simply be rebuilt and resubmitted.

Why Whiteford

Whiteford's tax controversy practice is led by Michael March, who handles IRS collection matters from the firm's Baltimore office and takes calls from taxpayers directly. Initial consultations are confidential and complimentary.

Hardship requests rarely arrive alone. The same account usually carries a recorded lien, an active wage garnishment, a bank levy, or a passport certification, and each of those has its own procedure and its own deadline. Whiteford handles that full set of collection tools in one place, which matters when a levy release has to be secured this week and the Form 433-A package needs another two.

The firm's collection work runs across offices in Baltimore, Columbia, and Towson, Maryland; Washington, DC; Wilmington, Delaware; Fairfield, New Jersey; and Richmond and Virginia Beach, Virginia. That footprint matters for taxpayers whose IRS problem sits alongside a state assessment, since the Comptroller of Maryland, the Virginia Department of Taxation, and the DC Office of Tax and Revenue each run collection programs that do not pause because the IRS did.