IRS Hardship: Frequently Asked Questions (FAQs)
What are other names for IRS hardship status?
There are many different names for IRS hardship, but they all mean the same thing. The various names include IRS uncollectible status, status 53, currently not collectible, and CNC status.
Does a CNC or currently not collectible extend the statute of limitations on IRS collections?
No, if you are declared currently not collectible, that does not change the statute of limitations (SOL) on collections. The collection statute expiration date CSED) is the date the IRS can no longer legally collect, and it's 10 years after the tax return due date or tax assessment date.
However, if you file bankruptcy or apply for an offer in compromise, the IRS tolls the statute of limitations on collection during the bankruptcy or while reviewing your offer in compromise application. There are a few other acts that can toll the timeline. The extra time gets added back on and moves the CSED further into the future.
What happens if the collection statute expires while you're on CNC status?
The tax debt will expire, and the IRS will no longer be able to collect it if the collection statute expires while you're on CNC status. To give you an example, imagine that you get CNC status on federal income tax from 2023, and the collection period expires on April 15, 2034 (that's 10 years after the due date of your 2023 tax return). You maintain CNC status until the expiration date, and then, you no longer have to repay that debt.
How do you apply for CNC status? Is there a specific form to file for IRS Hardship?
No, there is not a specific form to file for hardship. You can read more about the CNC application process here. You need to work with the IRS directly or leverage a tax professional to apply for uncollectible status. To be considered, you may have to fill out IRS Form 433-F (standard form for most taxpayers), Form 433-A (usually revenue officers request this), or IRS Form 433-B (business) among other requirements. These forms require detailed information about your assets, liabilities, monthly income, and expenses.
What expenses does the IRS allow if you file for hardship status?
To determine if you qualify for hardship status, the IRS looks at your income, expenses, and assets. The agency considers a certain amount of regular monthly costs. Mainly, if you are spending more than these amounts, the IRS expects you to reduce your bills and pay down your taxes.
But in some instances, you can ask for an exception - for example, maybe your out-of-pocket medical costs or utility costs are higher than the standard due to a medical condition. The IRS has certain allowances that are set on a national level, including food, clothing, housekeeping supplies, etc. The agency sets allowances for other expenses on a regional level as housing, transportation, and other costs vary based on location.
2024 National Standards: Monthly Food, Clothing, Misc Expenses for One Person
- $458 for food
- $87 for apparel and service
- $44 for housekeeping supplies
- $48 for personal care and services
- $171 for miscellaneous expenses
- You can get more details from the IRS.gov website.
As of 2024, the IRS expects a family of two to keep these expenses at $1411 or below. Three-person families are allotted $1677, while four-person families have a $2,027 allowance, and you can add on an extra $386 per person.
National Standards: Monthly Out-of-Pocket Health Care Expenses (2024)
- $83 for persons under 65 years old and $158 for people $65 and older
These allowances are per person. For example, if you are 70, your spouse is 60, and you have a disabled adult child who is 40, your monthly allowance is $324. That is $83 x 2 plus $158 x 1. However, if you need a higher allowance due to medical problems or, in this case, due to your adult son with disabilities, you will need to provide supporting documents such as medical bills or doctor's notes to get the IRS to consider a higher allowance.
Local Standards (2024)
Local standards include monthly allotments for housing, utilities, and transportation costs by region. In other words, the IRS determines allowable expenses based on where you live in the country. The IRS determines housing and utilities at the county level, whereas the IRS sets car operation costs at the regional level (discussed in more detail in a question below).
- Monthly allowance for the operation of cars based by region of the country
- Monthly allowance for housing and utilities set at the county level
What transportation costs does the IRS allow with hardship status?
When you apply for hardship status, the IRS allows you to count transportation expenses as part of your necessary expenses. You can include costs for public transit, leasing or paying a loan on a vehicle, and operating costs. If you own a car and take public transport as well, you may claim both expenses if you can prove them necessary.
For transportation costs, as of 2024, the IRS assumes that you spend $215 a month on public transportation. Allowed ownership costs, set at the national level, are $619 for one car and $1,238 for two vehicles. On top of that, you can also include operating costs based on where you live. For example, as of 2024, the IRS permits taxpayers in New York $377 per vehicle in operating expenses but only $200 per car in Anchorage, Alaska. To learn more, check out the IRS’s page on transportation allowances.
What are the IRS’s housing and utility allowances?
When determining what you need to spend on housing and utilities, the IRS uses different numbers based on where you live. The IRS sets standards at the county level, and they vary a lot. For example, as of 2024, a family of five in Escambia County, Alabama, has a $1,748 monthly allowance for housing and utility costs. In contrast, a family of five in Marin County, California has a monthly housing and utility allowance of $5,796 as of 2024.
To put it another way, you can have a much higher income in California and qualify to get on CNC status than you may have if you live in a less expensive area of the country. Basically, the IRS looks at your disposable income and asks, how much money do you have left over once you cover the cost of living in your area?
If I am declared currently not collectible, do I ever have to pay the IRS?
You may have to pay the IRS, but in some cases, your debt will expire and you won't have to pay. Uncollectible status is temporary and generally applies to each year you owe. The IRS checks your tax returns to see if your situation changes, and if so, they will require you to pay. If you remain uncollectible until the tax owed expires, you will not have to pay. Therefore, CNC status works for taxpayers in retirement or others who don’t expect their income to change drastically.
How long does CNC status last?
Status 53, aka CNC status, lasts until your financial situation improves, or until the tax debt expires. Theoretically, you could be on CNC status for the lifetime of the tax debt which is 10 years from assessment to expiration. If you're dealing with multiple years of tax debt with different expiration dates, you could potentially be on CNC status until each of the respective expiration dates hits.
Are there other options I should consider before trying to be declared uncollectible?
Yes, you may want to consider other options before pursuing uncollectible status. CNC status or IRS hardship usually comes with a tax lien. That is the IRS’s legal claim to your assets. Although it does not appear on your credit report, it is a public record and can make it very difficult to borrow money.
If you can afford to make a small payment, you may want to apply for an installment agreement instead. If you are in need of a short-term extension on your payment, you may qualify for an extension of time for payment due to undue hardship. To apply for this, use IRS form 1127 and submit it to the IRS with the supporting documents. Alternatively, you may look into an offer in compromise. An OIC is where you settle the tax you owe for less. When in doubt, request a free consultation with a tax professional to get an idea as to your best course of action.