The Internal Revenue Service (IRS) is granted the authority to determine that some accounts are currently not collectible (CNC). The IRS balances the potential for collection against the costs and its ability to collect.

The decision to suspend collection action is made with an awareness that the IRS also is charged with fair and equitable enforcement of tax laws.

Policy Statement 5-71 (P-5-71) provides the authority for reporting accounts currently not collectible (CNC). See IRM 1.2.1.6, Policy Statements for Collecting Process.

To determine economic hardship, consider any information provided by the taxpayer as outlined in Treasury Regulation 301.6343-1(b)(4)(ii).

(3) IRC 6343(e) requires the release, as soon as practicable, of a levy on salary, or wages payable to or received by the taxpayer upon agreement with the taxpayer that the tax is not collectible.

On May 17, 2006, Congress passed into law the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA).

Internal Revenue Code 6331(k)(1)(A) provides the authority to suspend the CSED while an Offer in Compromise is considered.

IRC 7122(d) provides the authority to determine whether an Offer In Compromise is adequate and should be accepted to resolve a dispute.

The Director of Collection Policy is responsible for overseeing policy and procedures regarding determinations to report accounts currently not collectible.

Managers and Leads are responsible for ensuring compliance with the guidance and procedures described in this IRM to report accounts currently not collectible.

Contact Representatives (CR), Customer Service Representatives (CSR), Tax Examining Technicians (TE) Lead Contact Representatives, Lead Customer Service Representatives and Lead Tax Examining Technicians may report as CNC those accounts that meet existing criteria subject to the limitations outlined in this IRM in accordance to the authority levels cited in IRM 5.19.17.2.1, CNC Closure Authority Levels, subject to managerial approval requirements.

Program Reports: The following reports can assist with reviewing this type of workload.

Program Effectiveness: The program effectiveness is measured by the following review types and by level of management.

CNC recommendations generally require the review and approval of the immediate manager to ensure the investigation meets established standards of thoroughness and integrity. See also IRM 5.19.17.2.2, CNC Managerial Approval. Managerial review criteria of work is located in IRM 1.4.20, Filing and Payment Compliance Managers Handbook.

This IRM contains a table of commonly used acronyms, see Exhibit 5.19.17-2, Common Acronyms Used in this IRM Section.

The list also contains the definition of each acronym used throughout this IRM section.

Here is a listing of some helpful IRM resources:

Here is a table listing primary forms that are used by the CNC Programs.

All IRS personnel are responsible for execution of duties in accordance with the Taxpayer Bill of Rights as listed in IRC 7803(a)(3). See IRC 7803(a)(3) Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR, see https://www.irs.gov/taxpayer-bill-of-rights.

IAT tools simplify processing by assisting the user with IDRS research and input. The tools also reduce the chance of errors and improve productivity. When an action must be taken and an IAT tool is available, Campus Compliance employees with access to IAT tools are required to complete the action using the IAT tool. See IRM 5.19.1.2.8, Mandated IAT Tools, for a list of mandated IAT tools.

This section provides the authority levels for case processing by the type of CNC closure, by closing codes, for each functional area.

For specific guidance on what is required prior to disposition of case, employees must follow the specific IRM section. See IRM 5.19.17.2, Currently Not Collectible (CNC Procedures), for procedures on closing cases as CNC.

For balances over the business unit dollar criteria, see IRM 5.19.1.4.1, Account Actions on Referral/Redirect.

If pre-assessed/unassessed taxes are included, the pre-assessed/unassessed liability plus unpaid balance of assessments (CC SUMRY) must be within the applicable dollar criteria shown.

If the taxpayer has been assessed a Frivolous Return Penalty or claims Frivolous Tax Arguments – used for the purpose of expressing dissatisfaction with the substance, form, or administration of the tax laws by attempting to illegally avoid or reduce tax liabilities, and they meet CNC criteria- See IRM 5.19.17.2.3, Tolerance and Deferral.

All employees are required to secure managerial approval when appropriate, as directed by specific IRM procedures.

The decision to place an account in CNC status requires the approval of a manager. The approval should normally be that of the recommending employee’s immediate manager. Designated acting managers may be given authority to approve CNCs. See IRM 5.19.17.2.1, CNC Closure Authority Levels, for dollar criteria.

The manager's review must address the thoroughness of the investigation to ensure that a hardship condition exists before approving an account uncollectible. If a mandatory follow-up is required, the manager must verify it meets the criteria in IRM 5.19.17.2.1, CNC Closure Authority Levels.

If the manager does not agree to grant the CNC status the case will be returned to the originating employee for follow-up. The manager should document the reason the CNC status was not approved in AMS comments. For ACS/ACSS managers rejecting the CNC request, input "OADT, 05,CNCREJ" .

If additional actions are needed to CNC an account, the manager should indicate what additional steps are to be taken before the account can be approved as CNC, such as consideration of an IA or OIC and/or address assets and equity on the AMS financial screen.

Ensure that the appropriate CNC cc is used per the AMS financial screen.

Once the CNC is approved, Letter 4624C, Case Closed -- Currently Not Collectible; Lien Filing Notification on Currently Not Collectible, must be sent to the taxpayer.

Tolerance: The following accounts may be closed as CNC tolerance without further action (cc 09), by inputting TC 530 cc XX to IDRS utilizing either IAT REQ77 (mandated) or IAT Compliance Suite (suggested)tools, where the aggregate unpaid balance, including accruals is less than the following MF types and tolerance amounts:

Deferral: The following accounts may be closed as CNC deferral without further action (cc 09), by inputting TC 530 cc XX to IDRS utilizing either IAT REQ77 (mandated) or IAT Compliance Suite (suggested) Tools. Refer to the following for a list of MF types and deferral amounts (aggregate assessed balance (AAB), including accruals):

If the taxpayer qualifies for hardship and tolerance/deferral simultaneously, use the appropriate hardship closing code, see IRM 5.19.17.2.4, CNC Unable to Pay - Hardship. Selecting the hardship code will keep the account in not collectible status until the taxpayer’s financial status improves sufficiently to allow them to make payments.

A hardship occurs when an individual taxpayer is unable to meet their basic living expenses. The standard amounts for basic living expenses will be established by the IRS, and will vary according to the unique circumstances of the individual taxpayer. Unique circumstances, however, do not include the maintenance of an affluent or luxurious standard of living.

Hardship closing codes can only be used for individual or joint IMF assessments, sole proprietorships, partnerships where a general partner is personally liable for the partnership taxes, and LLCs, where an individual owner is identified as the liable taxpayer.

See IRM 5.19.13.2, Authority Levels for Financial Analysis, Verification and Substantiation, for financial analysis requirements, including verification and substantiation. Follow the procedures in IRM 5.19.13, Campus Procedures for Securing Financial Information to determine resolution of the case. If it is determined that the taxpayer meets criteria for CNC Hardship and the taxpayer has unfiled returns follow the below procedures.

If it is ever determined that a levy is creating a hardship, follow the procedures in IRM 5.19.4.4.10 (5)(j), Levy Release: General Information. If the hardship is verified, the levy must be released. If the taxpayer has unfiled return(s) the CR should inform the taxpayer that they have unfiled returns and provide adequate time for the preparation of the returns.

Follow the Balance Due Account Only procedure below:

Follow the Combo Case procedures below:

If the account being reported CNC is a BMF out of business account, ensure all filing requirements are closed.

If the taxpayer is unable to pay and the liability is a result of under withholding continue with the CNC process (financial, etc.) and CNC if necessary.

If the determination is made that account will be closed CNC (unable to pay) it is required that the taxpayer/POA be informed of the CNC terms and that the CNC was approved by issuing Letter 4624C, Case Closed -- Currently Not Collectible; Lien Filing Notification on Currently Not Collectible.

At times, the taxpayer, who meets hardship criteria, requests an IA rather than a CNC. In this scenario, establish the Installment Agreement (IA) or Partial Pay Installment Agreement (PPIA) with a back-up 53. Refer to IRM Exhibit 5.19.1-9, ALNs.

Values for unable-to-pay codes are:

Ensure that when using either IAT REQ77 (mandated) or IAT Compliance Suite (suggested) Tools to input the CNC, the correct Responsibility Unit Code (RUC) is used. See IRM 5.19.17-1, IDRS Input of CNCs, CC REQ77/FRM77.

The systemic process for reactivating hardship CNC accounts relies on an increase in Taxpayer Positive Income (TPI) above a predetermined amount, based on the hardship cc when the case is closed as CNC:

Employees may discover a taxpayer is currently incarcerated. Taxpayers in this situation are afforded the same rights as other taxpayers; processing these accounts is also the same.

When securing information from third parties, remember to secure as much information as possible including:

Do not transfer cases to the call site or campus in whose jurisdiction the taxpayer is incarcerated unless the taxpayer has assets there.

Use closing code 08 to report an account CNC on a decedent or decedent estates.

Closing code 08 is appropriate for IMF joint liabilities only when both taxpayers are deceased and determination has been made that there is no collection potential from assets owned at death.

Closing code 08 may be used when the primary taxpayer is deceased and determination has been made that there is no collection potential from the decedent’s individual or business assets or persons in possession of such assets. Collection may also be pursued from the surviving spouse on joint liabilities using MFT 31 mirrored accounts. See IRM 5.19.17.2.10, CNC Assessments Against Two or More Taxpayers.

Do not use closing code 08 when only the secondary taxpayer is deceased. A TC 540 should be input on the secondary taxpayer’s SSN, if it has not already posted to the account. Collection may also be pursued from the primary taxpayer on joint liabilities. If the primary taxpayer is determined to be uncollectible, the account should be closed using a hardship closing code.

Closing code 08 also applies to BMF sole proprietorship and partnerships only if all of the partners are deceased and taxes were due at the time of death.

In situations where the owner of an LLC is identified as the liable taxpayer and is deceased, closing code 08 is appropriate.

When reporting accounts CNC using closing code 08, do not input separate TC 540 to delete the master filing requirements. The input of TC 530 cc 08 will systemically generate a TC 540.

Defunct corporation applies to:

If the AAB (CC SUMRY) is less than ≡ ≡ ≡ ≡ ≡ ≡, and a person legally authorized to act for the business (partner, officer, etc.) states the company is defunct and all assets were dispersed, close the account after exhausting all levy sources if in ST 22.

If the conditions in paragraph (2) are met, follow the steps below based on your function and the account status:

If the AAB (CC SUMRY) is ≡ ≡ ≡ ≡ ≡ ≡ or more, and a person legally authorized to act for the business (partner, officer, etc.) states the company is defunct and all assets were dispersed, take the following actions:

If the conditions in paragraph (4) are met, follow the steps below based on your function and the account status:

If the prior CNC determination is no more than twelve months old and the total assessed balance plus total liabilities related to the unassessed return is less than $25,000, the new account may generally be reported CNC without further investigation.

When prior accounts were closed as unable to pay more than twelve months ago, financial analysis/verification is required. Prior CNC modules must be updated with the new Unable to Pay cc.

When closing BMF modules CNC cc 07 or cc 10 and earlier modules were previously closed with cc 13, update the earlier modules with cc 07 or cc 10.

Ensure all filing requirements are closed when BMF entities are closed with cc 07 or cc 10.

Exceptions are:

There are occasions when a taxpayer has multiple accounts potentially qualifying for CNC; this includes accounts on different MFs.

When recommendation for CNC is made, you must ensure a Full Compliance Check is complete making certain multiple accounts are addressed; document comments in AMS.

ACS/ACSS inputs most CNC closures via ACS. If non-ST 22 modules are present on an ACS account, bring them into ST 22. If ST 23 accounts are involved on an ACS account, bring them to the TIF using CC MFREQ C, and input an AMS history or CC ENMOD, such as "CNCEXE" , to include the module expedited into ST 22 for inclusion in CNC closure.

When you cannot reassign a module to ST 22 (such as expiring CSED or ST 21 account):

If warranted, managerial approval of all modules must be documented in AMS history.

Assessments against more than one taxpayer can only be reflected as CNC if all of the liable taxpayers are determined to be uncollectible. In order to request a CNC hardship closing code on a joint IMF liability, where the taxpayers are now divorced or separated, both taxpayers would need to be uncollectible.

If one spouse is uncollectible and the other spouse is collectible, follow the procedures for IRM 5.19.17.2.10.1, Front End Mirror Assessments Process for CNC Closures, and IRM 5.19.17.2.10.2, Back End Mirror Assessments Process for CNC Closures.

Advise the taxpayer that once the account is for specified period(s) it will not be reversed. If the action is agreed upon, the IRS will start the "mirroring" process on the primary taxpayer’s account. The MFT 30 account is "mirrored" into a MFT 31 account for each spouse.

Systemic reactivation on accounts CNC is limited to:

A mandatory follow-up action is only requested to ensure protection of the revenue potential of the case when there is strong likelihood the revenue can be collected by taking the requested action. Rarely is a mandatory follow-up requested on accounts subject to systemic follow-up.

Request mandatory follow-up when there is evidence the taxpayer’s ability to pay will improve and either computer-generated reactivation is not available or the improvement will happen significantly sooner than systemic reactivation can occur; circumstances include:

ACS rarely closes accounts CNC that would require a mandatory follow – up. If the taxpayers meet the criteria for a CNC mandatory follow-up;

If the taxpayer contact reveals the current closing status has changed, manually input TC 531.

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Standalone SRP modules will be subject to a recess. This means that routine collection activities will temporarily halt.

SRP modules can be recessed manually with managerial approval following guidance provided by the applicable functional area.

The following transaction codes are associated with Offer In Compromise (OIC)

To determine which spouse is included on the offer, look for one of the following TC 480 indicators;

If a taxpayer or authorized representative states they filed an offer, check the account for TC 480, -Y Freeze, or ST 71. If none of these indicators are present, ask the following questions:

Posting of TC 480 can be impacted by where the offer was submitted. All offers are loaded by Memphis or Brookhaven COIC; therefore, it will take longer for TC 480 to post on offers received in other locations. Determine if taxpayer or POA Submitted OIC to:

If an OIC payment was submitted, check IDRS TXMOD or IMFOLP for a:

If the taxpayer has received correspondence from the Service regarding their offer application, advise them to follow the instructions contained in the correspondence.

If the offer was mailed 45 or more days ago and the taxpayer has not received correspondence from COIC, take the following actions;