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Valor Tax Relief Team
Professional Tax Resolution Specialists
Key Takeaways
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Installment Agreement: Allows you to pay tax debt in fixed monthly payments over time, stopping aggressive collection actions
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Currently Not Collectible (CNC): Pauses all payments when you cannot afford them without causing financial hardship
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Interest & Penalties: Continue to accrue under both programs until the debt is fully paid
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Best Choice: Installment Agreement if you have steady income; CNC if any payment would cause hardship
Introduction
When you owe the IRS and don't have the funds to pay in full, the stress can feel overwhelming. Fortunately, the IRS offers tax relief programs designed to help taxpayers manage their debt without immediate financial ruin. The two most common options are the IRS Installment Agreement and Currently Not Collectible (CNC) status.
While both can provide breathing room, they serve different purposes and are best suited for different financial situations. This guide breaks down how each option works, the eligibility criteria, pros and cons, and how to decide which might be the right fit for your circumstances.
Understanding the differences between these programs is crucial for making an informed decision about your tax debt resolution strategy. Both options can stop aggressive collection actions, but they have different requirements, benefits, and long-term implications for your financial future.
Understanding Both Options
When comparing IRS Installment Agreement vs. Currently Not Collectible, it's important to understand the mechanics of each program before weighing the benefits and drawbacks. Both provide relief, but the outcomes differ significantly.
IRS Installment Agreement
An IRS Installment Agreement allows you to pay your tax debt in monthly installments over time rather than all at once. Think of it as a payment plan with the IRS. This option is ideal when you have steady income and can afford regular payments without sacrificing basic living expenses.
Types of Installment Agreements
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Short-term plans (Under 180 days): If you can pay your debt within 180 days, you may qualify for a short-term agreement without setup fees
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Long-term installment agreements: For larger balances that require more than 180 days to pay off
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Guaranteed Installment Agreement: Available if you owe $10,000 or less, have filed all returns, and can pay within 3 years
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Streamlined Installment Agreement: Designed for individuals with balances under $50,000
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Partial Payment Installment Agreement: Lets you make reduced monthly payments that may not cover the entire balance before the collection statute expires
Currently Not Collectible (CNC) Status
Currently Not Collectible (CNC) status is different. It doesn't require any payment at all while it's in effect. Instead, the IRS agrees that your financial situation prevents you from paying anything without jeopardizing your ability to afford basic living expenses.
How CNC Works
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1The IRS pauses collection actions like levies and garnishments
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2Your balance continues to accrue interest and penalties
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3A federal tax lien may still be filed, affecting your credit
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4You must submit detailed financial information using Form 433-F or Form 433-A
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5The IRS periodically reviews your finances to determine if your situation has improved
Eligibility and Application Process
Knowing whether you qualify for an installment agreement or CNC is crucial. Both require that you're up to date on tax return filings, but the details vary significantly.
Installment Agreement Eligibility
For an IRS Installment Agreement, eligibility largely depends on how much you owe and your compliance with filing requirements. You must have filed all required tax returns, and taxpayers in open bankruptcy proceedings are generally ineligible.
Application Methods
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IRS Online Payment Agreement tool: The fastest method with lower setup fees
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Form 9465: Can be filed by mail if you prefer paper
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By phone: Speaking directly with the IRS may be necessary for complex situations
CNC Eligibility
To qualify for Currently Not Collectible status, you must prove that paying anything would cause financial hardship. This isn't based on your word alone. The IRS requires documentation and uses its financial standards for necessary living expenses to determine eligibility.
CNC Application Process
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1Contact the IRS directly by phone or through a tax professional
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2Provide all supporting documentation of your financial hardship (pay stubs, rent receipts, utility bills, etc.)
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3The IRS reviews your case periodically, sometimes annually, to see if your finances have improved
Pros and Cons of Each Option
Once you understand eligibility, the next step in weighing IRS Installment Agreement vs. Currently Not Collectible is to evaluate the pros and cons of each approach.
Installment Agreement
Pros
- You make steady progress toward paying down your balance
- Once approved and payments begin, IRS collection actions stop
- Provides a predictable monthly payment structure
- Direct debit can reduce fees and lower the risk of default
Cons
- Interest and penalties continue until the balance is paid in full
- Missing payments can cause the agreement to default
- Setup fees apply unless waived
- For partial payment agreements, you must submit detailed financial records
Currently Not Collectible
Pros
- Provides immediate relief from collection activity
- No monthly payments required while status is active
- Protects essential income and assets from seizure
- Gives you time to improve your financial situation
Cons
- Interest and penalties continue to accrue
- A federal tax lien may still be filed
- IRS will review your finances periodically
- Status can be revoked if your financial situation improves
Making the Right Decision
Choosing between an Installment Agreement and CNC status depends on your specific financial situation, income stability, and long-term goals. Here's how to determine which option is right for you:
Choose Installment Agreement If:
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You have steady, reliable income that can cover monthly payments
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You can afford payments without sacrificing basic living expenses
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You want to actively work toward paying off your debt
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You want to avoid the uncertainty of periodic financial reviews
Choose CNC Status If:
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Any payment would cause financial hardship
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You're unemployed or have irregular income
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You have significant medical expenses or other unavoidable costs
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You need temporary relief while working to improve your financial situation
Alternative Options
If neither option fits your situation, consider these alternatives:
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Offer in Compromise: Settle your tax debt for less than the full amount owed
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Penalty Abatement: Request removal of penalties if you have reasonable cause
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Innocent Spouse Relief: Relief from joint tax liability in certain circumstances
Frequently Asked Questions
Here are answers to the most common questions about IRS Installment Agreements and Currently Not Collectible status.
Yes, if your financial situation changes and you can no longer afford your installment payments, you can request CNC status. You'll need to provide updated financial documentation showing that payments would cause hardship. The IRS will review your case and may approve the change if you meet CNC criteria.
CNC status doesn't have a fixed duration. The IRS will review your financial situation periodically, typically every 12-24 months, to determine if your circumstances have improved enough to resume collections. If your financial situation improves, the IRS may revoke CNC status and require payments or an installment agreement.
Yes, the IRS can deny an installment agreement if your proposed payment plan is not feasible, if you have unfiled tax returns, or if your financial information shows you can pay more. Submitting accurate documents and filing all returns improves your chances of approval.
The IRS may still file a federal tax lien even if you are on an installment agreement, especially if your debt exceeds $10,000. However, streamlined agreements and direct debit plans can sometimes prevent or withdraw liens.
You generally cannot have two IRS installment agreements at the same time. If you owe new taxes while already in a payment plan, the IRS usually requires you to amend or restructure your existing agreement to include the new balance. In limited cases, the IRS may allow a new agreement after defaulting, but you'll need to reapply and meet eligibility requirements.
Conclusion
Deciding between an IRS Installment Agreement vs. Currently Not Collectible depends on your financial capacity and long-term goals. An installment agreement is best if you can afford regular payments and want to steadily chip away at your debt. CNC status is more appropriate if paying anything at all would jeopardize your ability to meet basic needs.
In either case, taking proactive steps, rather than ignoring IRS notices, will protect you from harsher collection actions. Both options can provide significant relief from aggressive collection tactics like wage garnishments or levies.
Consider consulting a tax professional to evaluate your unique situation and choose the strategy that provides the most relief with the least long-term damage. The right choice depends on your specific circumstances, income stability, and ability to make payments without causing financial hardship.
Need Help Choosing the Right Option?
Our experienced tax professionals can help you determine whether an Installment Agreement or CNC status is right for your situation. We'll evaluate your financial circumstances and guide you through the application process.
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