What is the IRS hardship program?

What is CNC status?

The IRS hardship program is for people who are struggling financially and don't have money to pay their tax bills. There are requirements taxpayers must meet to be considered. You need to show that you have little or no money left after paying living expenses, such as rent, groceries and utilities.

However, if the IRS grants you CNC status, the debt doesn't disappear. You'll still owe the money when your financial situation improves, along with interest and late penalties.

Who qualifies for a CNC?

A taxpayer experiencing financial hardship and struggling to pay essential living expenses can apply for the IRS hardship program. The IRS sets amounts for basic living expenses. It's possible that you may have a basic living expense that costs more than what the IRS considers standard.

According to Logan Allec, the founder of Choice Tax Relief, "If the IRS determines that the standard housing expense for your county and family size is only $2,000 per month, but you pay $3,000 per month in housing expenses, the IRS will generally only let you consider $2,000 of housing expenses in proving to them your hardship case."

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How to apply for the IRS hardship program

Applying for CNC status is typically done by calling the IRS. You'll have to provide income and expense information and documentation. Here’s what you’ll need:

• Personal asset information with documentation: This includes information for all bank accounts, investments, credit cards and property, including real estate and vehicles.
• All of your income: Provide your wages, interests and dividends.
• Monthly essential living expenses: These include rent or mortgage, utilities, food, clothing, vehicle costs, public transportation and health insurance.
• Form 433-A, Form 433-B or Form 433-F: These forms are known as Collection Information Statements and are used to determine how you can satisfy an outstanding tax liability.

What happens after you're granted the IRS hardship program?

The IRS temporarily suspends taxes owed when the IRS grants a taxpayer IRS hardship. The IRS will charge interest and penalties while you’re unable to pay. "The IRS will stop any forced collection activity against you as long as you remain in hardship status," said Allec. "This means that the IRS is not allowed to levy your wages or garnish your bank account."

How to maintain your status for the IRS hardship program

Once CNC status is granted, it's important to continue to comply with all tax laws.

As a government agency, the IRS wants to protect itself by ensuring it gets paid money owed. The IRS can file a Notice of Federal Tax Lien (NFTL), a claim against assets that will appear in public records. "If you get into hardship status, then the IRS files a Notice of Federal Tax Lien, and then you sell your home that has hundreds of thousands of dollars in equity in it, the IRS will get ‘first dibs’ on your proceeds (up to the lien amount). You get the rest," explained Allec. Typically, the IRS places a tax lien when the balance owed is $10,000 or more.

The IRS will check your financial situation annually to see if it has improved and you're able to pay the taxes you owe. If the IRS has questions or needs additional documentation, respond quickly and provide the requested information.

The IRS can try to collect taxes for up to 10 years from the date they were assessed. However, the agency can suspend this period in some situations, extending the time it has to collect.

» MORE: What is a tax lien?

Bottom line

If you’re struggling to afford basic living expenses and don't have money to pay your tax debts, the IRS hardship program is a potential option. However, the IRS sets its own rates of what the cost of living is. Keep in mind that people granted hardship status still owe taxes. The IRS will apply interest and penalties while the tax debt is on a temporary hold.