Currently Not Collectible Status is Forever: Until It's Not
When a client is placed into “Currently Not Collectible” status, the levies stop, the garnishments stop, and the letters slow down. The client exhales.
But here’s the reality: CNC status can be a resolution, but many times it's not.
Instead, it's a pause. And pause buttons can be unpaused.
In this week's Resolving Tax Debt, we'll talk about the four most common triggers that cause the IRS to reverse Currently Not Collectible status and put a taxpayer right back into active collections.
Why This Matters to You
Your client thought everything was “handled.”
Understanding what reactivates collections allows you to anticipate problems before they detonate inside your client’s life — and inside your workflow.
1. An Increase in Income
CNC is granted because the IRS determines a taxpayer cannot currently afford to pay. That determination is based on income and allowable expenses at that time.
But the IRS doesn’t walk away after making that call. It monitors. If your client’s W-2 income increases… If business revenue jumps… If 1099 income starts flowing again, the IRS computer systems flag it.
And when income rises above hardship thresholds, the IRS may conclude that the taxpayer now has the “ability to pay,: and collections restart.
Not because anyone did something wrong. But because the client's financials have changed.
For professionals advising clients in growth phases, remember, a successful year can quietly trigger renewed enforcement.
2. Receipt of a Large Lump Sum
Bonuses. Inheritance. Legal settlements. Sale of property. Retirement distributions.
The IRS receives third-party reporting from banks, employers, and financial institutions. When a taxpayer in CNC suddenly receives a significant lump sum, it raises a red flag.
From the client’s perspective, this feels unfair. From the IRS’s perspective, if there is money available, the government expects to be paid.
3. Newly Filed Tax Returns Showing Improved Finances
Sometimes the trigger isn’t external reporting. It’s the client filing returns.
CNC status requires ongoing compliance. When returns are filed they provide fresh financial data.
And if those returns show higher income than originally presented when CNC was granted, the IRS updates is hardship analysis.
If the new financial picture shows ability to make payments, CNC may be removed.
4. Failure to Stay Compliant
This one is the most avoidable.
CNC status requires ongoing filing compliance. If a required return isn’t filed… If estimated payments aren’t made… If a business falls behind on payroll tax deposits…the IRS has no problem revoking your hardship status at which point they move the account back into active collections.
And when CNC is lifted because of noncompliance, enforcement can resume quickly.
TL;DR
Currently Not Collectible status does not always result in a full resolution.
It can be reversed when:
⏩ Income increases beyond hardship levels
⏩ A taxpayer receives a large lump sum (bonus, inheritance, settlement)
⏩ Newly filed returns show improved financial condition
⏩ The taxpayer fails to remain compliant with filing or payment requirements
➥ Contact Attorney Stephen A. Weisberg for a free Tax Debt Analysis.
Contact Me Here: https://www.weisberg.tax/contact-1
Email: s.weisberg@weisberg.tax
Phone/Text: (248) 971-0885
Address: 300 Galleria Officentre, Suite 402, Southfield, MI 48034
