IRS Hardship Requirements to Qualify for IRS Uncollectible Status

To be declared currently not collectible (CNC), you have to prove to the IRS that if they were to collect taxes owed to them, it would create an unfair economic hardship. The IRS will consider each applicant on a case-by-case basis. The bottom line requirement for CNC status is that you prove you don't have assets or disposable income to pay your tax bill, and then, the IRS stops collection actions until your situation improves. The following sections break down further details about the requirements for hardship/CNC status.

Currently Not Collectible - Most Important Qualifying Requirement

If your income isn't enough to cover the IRS’s allowable expenses or your actual expenses if less, the IRS will qualify you as Status 53 or currently uncollectible. To give you an example, imagine that your income is $2,000 per month, and all of your expenses add up to $2,100 per month and fall under the IRS's allowed financial standards. In this case, you will most likely qualify, provided you don't have any assets that you could sell or cash out to cover the tax debt. 

In contrast, say that you earn $2,000 per month, but you only have $1,500 in expenses. In this case, the IRS believes that you have $500 in disposable income, which they will want you to pay toward your tax debt every month. Note this can happen even if your actual expenses are lower than some of the allowed amounts. 

How Do I Qualify for IRS Hardship? Pre-Screening Questions for Uncollectible Status

The following are some questions to ask yourself. If you answer no to any of these, you may be a good candidate for being declared uncollectible.

If the IRS were to collect taxes owed from you would you be able to:

• Provide food for yourself?
• Pay your mortgage or rent?
• Keep retaining utilities?
• Obtain transportation to and from work?
• Keep your job?
• Obtain necessary medical treatments and medications needed?
• Obtain a reasonable amount of clothing, cleaning supplies, and other miscellaneous essentials?
• Not lose educational opportunities?

Even if you answered no to any of the questions above, it doesn’t mean you qualify for a CNC. You may have lavish expenses or expenses the IRS doesn’t consider necessary or allow. For example, credit card payments and school tuition are usually not allowed. Therefore, you may have less at the end of each month than the IRS calculations indicate. For example, if you pay $500 a month in credit card payments, the IRS will not consider that to be a necessary expense. Instead, the agency will expect that you use those funds to pay your tax debt.

Catching Up on Unfiled Tax Returns

Filing compliance is not required to get CNC status but is recommended. Exceptions to the filing requirement rule have been made as in the case of Vinatieri v. Commissioner of Internal Revenue, 133 T.C. 392. A tax pro can help you catch up on unfiled returns and determine if this is the best option for you.

Addressing the Cause of the Delinquency

In some cases, the IRS will not approve a CNC request if the taxpayer has not resolved the issue as to why they fell behind. For example, if a taxpayer does not have his or her employer withhold enough taxes from their paycheck, the IRS will require the taxpayer to adjust withholdings before approving a CNC.  In the case of a self-employed taxpayer, the IRS usually wants the taxpayer compliant with estimated tax payments for the current year before placing the taxpayer on a CNC status.

Collection Information Statement (Usually Required)

In most cases, if you want to get on currently not collectible status, the IRS will ask you to detail your financial situation by filing a collection information statement. In fact, that's why people sometimes call hardship IRS Form 433 non-collectible status. A collection information statement is an IRS form that details your monthly income, monthly expenses, assets, and liabilities. 

In most cases, if the IRS does request a CIS,  it will be IRS Form 433-F. In some cases, a revenue officer and other IRS personnel may require a 433-A, which is a more extended version of Form 433-F.  This form helps you and the IRS calculate your actual expenses and your total allowable expenses based on IRS Collection Financial Standards. When reviewing your application, the IRS compares your actual expenses to the allowable monthly living expenses to determine what you can pay, with any access to equity in assets also taken into consideration. 

The IRS will grant exceptions to filing this statement in rare situations. In particular, if you're dealing with a terminal illness, excessive medical bills, a combat zone, or if your only income is Social Security or unemployment, you may be able to get CNC status without providing a collection information statement.

Collection Financial Standards – Allowable Monthly Living Expenses

The IRS determines your ability to pay back taxes by comparing your actual living expenses to its Collection Financial Standards for costs deemed necessary by the IRS. Necessary expenses are those essential to you or your family’s health and welfare or necessary for the production of income. As you complete the CIS, you will need to fill out your actual monthly living expenditures, and when you file the form, the IRS will note the amount the IRS allows for each category.

For example, you will enter your monthly mortgage or rent payment. Then, when reviewing your application, the IRS employee will note the standard allowance for rent/mortgage expenses based on the cost of living in your area during the year you apply. 

Here are the various types of allowable expenses as of 2024:

National Standards for Food and Clothing

The IRS has National Standards for food, clothing, housekeeping supplies, apparel, personal care products, and miscellaneous expenditures.  Your family size determines the allowable monthly expense for each category. For example, as of April 2024, the standard monthly food cost for a single person is $458, while the monthly allowance for a family of four is $1143. As of 2024, the IRS also expects a single person to need $44 for cleaning supplies, $87 for apparel and services, $48 for personal care, and $171 for miscellaneous on a monthly basis. As you can see, this is not a generous budget. 

The IRS allows you to claim the standard even if you spend less. For example, if you don't buy any clothes, you can still count the $87 per month as an outgoing necessary expense when completing your CNC forms.

National Standards for Out-of-Pocket Health Care Expenses

The IRS also has National Standards for out-of-pocket health care.  Out-of-pocket health care expenses include monthly expenses for prescription drugs, medical care (no elective procedures), and medical supplies including eyeglasses and contact lenses. This expense category does not pertain to health insurance. As of 2024, the IRS allows $83 a month for the taxpayer and each dependent. For taxpayers or dependents over 65 years old, the monthly allowable expense is $158.

The IRS lets you claim this allowance even if you spend less. If you spend over this amount, be prepared to provide the IRS with doctors' notes or other documents explaining why they need to consider a higher amount.

Local Standards for Housing and Utilities

The IRS has “housing and utilities” standards. Housing and utilities pertain to mortgage payments or rent, property taxes, insurance, water, maintenance, interest, gas, electric, heating oil, cell phone service, cable, and internet.  The allowable monthly expense for housing and utilities is determined by what county you live in (primary residence) and the size of your family. You can find updated 2024 allowable living expenses for housing and utilities here. Once you reach the page, select your state for a breakdown of expenses by county.

Housing and utilities are one monthly number. Sometimes, if you are above the IRS standard, the IRS may make an exception because it's generally not reasonable to expect someone to move. However, the IRS will not approve excessive rent or mortgage payments, if the agency believes that you could reasonably reduce your expenses and pay your tax bill.

Local Standards for Transportation

The IRS also sets allowable transportation costs that reflect the maximum the agency believes you should spend on a monthly basis. Transportation includes a national ownership standard (lease or loan payment) and a local operating standard (determined by the region of the country). Operating costs include maintenance, inspections, registration, insurance, repairs, parking, and tolls. You can see the 2024 IRS transportation standards here.

For example, as of 2024, the national ownership allowance is $619 for one vehicle. If you live in Boston, for example, you get to add on an additional $310 for operating expenses, but in contrast, if you live in St Louis, you only get to add on an extra $220 for operating expenses. 

Additionally, the IRS allows the standard of $215 a month for public transportation expenses (regardless of what you spend). If you have a car and use public transit, the IRS may permit both expenses if you can prove them necessary.

The ownership and monthly operating cost you are allowed is the lesser of what you spend or the IRS allowable amount. For example, if you don't have a car and you don't take public transit, you will get a $0 allowance for this category. In fact, a lot of tax pros lean on this loophole, and they advise their clients without cars to get one before applying for CNC. Then, they can take that car expense into account when calculating their disposable income. 

Health Insurance and Other Expenses

The IRS will allow the actual amount you pay each month for health insurance. 

Other Reasons You Can Use to Qualify for CNC Status

The IRS will place a taxpayer in uncollectible status for a variety of reasons. As discussed above, if the taxpayer can prove paying back taxes creates an economic hardship, then the IRS will place the account in a CNC status. There are other reasons why the IRS may stop collection activity on a tax debt including but not limited to:

• An exempt organization, corporation, or LLC (if LLC is liable), liquidated in bankruptcy
• A taxpayer dies, and there is no collection potential from the decedent or estate
• An exempt organization, LLC or corporation is in business and current but cannot pay back taxes
• IRS cannot reach the taxpayer, even with knowledge of their address, the IRS cannot enforce collections
• The statute of limitation on collections expired in part or completely
• In international cases, revenue officers may issue a CNC if the taxpayer is in a foreign country and it cannot collect
• The IRS cannot locate the taxpayer or his or her assets
• The assessment partially expired before the IRS issued it

See IRM 5.16.1, for more information and qualifying reasons.

Supporting Documentation

It is a good idea to gather supporting documentation for your CNC request to the IRS. For example, organize copies of documents that support your expenses, income, assets, and liabilities. The IRS may not request supporting documentation. However, having it readily available can make the process smoother. You can find more information for filing or requesting uncollectible status here.

Only a small percentage of people qualify for this type of relief. If you don't qualify for this, you may want to see if you meet the requirements for an offer in compromise. Tax return compliance is usually required to obtain a CNC Status. A taxpayer with less than $25 in disposable income per month (monthly income minus allowable IRS monthly expenses) is an excellent candidate assuming they don’t have access to equity in assets (with exceptions).

Work with a tax professional to ensure you avoid any possible pitfalls. For example, a licensed professional can help you complete the CIS correctly and ensure you maximize and capture all allowable expenses. Moreover, it helps to have someone on your side showing the IRS why you may need an exception for a particular living expense. Finally, a tax professional may recommend a more beneficial settlement or agreement with the IRS. For example, an Offer In Compromise may be a better solution.

Getting your account marked as uncollectible can help you avoid wage garnishments, asset seizures, and other unwanted collection actions. To get help now, use TaxCure to search for a tax pro with CNC experience.