Let’s say you have some assets, but you are not rich. What you have is a smattering of things that are, well, honestly, not worth that much. Maybe it is a house with a mortgage that needs a lot of repairs. Maybe it is a small retirement account that was left over from a prior job. Things like that.
But you also owe the IRS. Can the fact that you have these miscellaneous odds and ends disqualify you from some of the IRS’s more favorable tax payment options? For example, the IRS’s currently not collectible status. Can these odds and ends prevent you from qualifying for that status with the IRS?
The case of Epps v. Commissioner, T.C. Memo. 2025-85, answers this question. It involves a taxpayer who had some assets and wanted for currently not collectible status for his balance with the IRS.
Facts & Procedural History
The taxpayer filed his 2014 federal income tax return late. He eported a tax liability of $136,003 with withholding credits of $22,589 and an addition to tax of $220 for failure to pay estimated tax. He failed to pay the remaining balance due with his return. The IRS assessed the reported tax, along with a failure-to-pay penalty and interest. The balance was$159,000 by 2021.
To collect this unpaid tax debt, the IRS issued a notice of intent to levy on the taxpayer’s property. In response, the taxpayer timely requested a Collection Due Process (“CDP”) hearing. The CDP hearing form noted that he could not pay the balance and it requested penalty abatement, and asked for an installment agreement and an offer-in-compromise.
The case was assigned to an Appeals officer who scheduled a telephone hearing with the taxpayer’s attorney for July 2022. During this hearing, the attorney stated that the taxpayer, who was incarcerated at the time, was unable to pay his tax debt. The Appeals officer requested financial information via Form 433-A to evaluate the taxpayer’s ability to pay.
The taxpayer’s financial information listed monthly net disposable income of $2,628 after expenses, bank accounts totaling $33,300, investments worth $182,176, and equity in real property of $236,995, along with additional equity in vehicles and an open line of credit. Based on this financial information, the IRS Appeals officer determined that the taxpayer could fully pay his tax debt and was therefore ineligible for Currently Not Collectible status.
The taxpayer disagreed with this determination and petitioned the U.S. Tax Court for review of the Appeals officer’s decision.
What Authority Does the IRS Have for Collection Due Process Hearings?
When a taxpayer receives a notice of intent to levy, they have the right to request a Collection Due Process hearing under section 6330 of the tax code. This statutory right provides taxpayers with procedural due process protections before the IRS can take certain collection actions against their property.
Section 6330 was enacted as part of the IRS Restructuring and Reform Act of 1998 to ensure that taxpayers have an opportunity to be heard before the IRS exercises its significant collection powers. The CDP process requires the IRS to provide notice to taxpayers and allows them to request a hearing with the IRS Office of Appeals before levy actions can proceed.
During a CDP hearing, taxpayers can contest the underlying tax liability in limited circumstances, request collection alternatives, or argue that collection procedures weren’t properly followed. Among the collection alternatives available, Currently Not Collectible status, is frequently requested by taxpayers claiming financial hardship. Other common alternatives include IRS Installment Agreements and IRS Offer in Compromises.
How Does Currently Not Collectible Status Work?
Currently Not Collectible status is an administrative remedy. The IRS simply agrees to suspend active collection efforts.
When an account is placed on CNC status, the IRS halts collection activities such as levies and garnishments, though the underlying tax debt remains outstanding and continues to accrue interest and penalties.
CNC status differs fundamentally from debt forgiveness or settlement programs. The tax debt remains fully due and owing, and the IRS retains all of its collection rights. While rare in practice, the IRS can review CNC accounts periodically to determine whether the taxpayer’s financial situation has improved sufficiently to resume active collection efforts.
To get this relief, the taxpayer has to show they cannot pay their tax debt without experiencing economic hardship. Taxpayers must demonstrate their financial situation through detailed documentation, typically using Form 433-A for individuals or Form 433-B for businesses. This comprehensive financial disclosure allows the IRS to evaluate whether the taxpayer genuinely lacks the means to pay their tax obligation.
To be entitled to this collection alternative, a taxpayer must demonstrate that, on the basis of their assets, equity, income, and expenses, they have no apparent ability to make payments on the outstanding tax liability. This standard ensures that CNC status is reserved for those experiencing genuine hardship rather than mere inconvenience.
What Financial Standards Must Taxpayers Meet for CNC Status?
The IRS and courts have established specific criteria for determining eligibility for Currently Not Collectible status. These standards focus on whether paying the tax debt would prevent the taxpayer from meeting basic living expenses. The courts have said that this requires more than mere financial inconvenience—it requires actual economic hardship.
The IRS is not allowed to put an account in CNC status if the taxpayer has income or equity in assets unless enforced collection would cause hardship. This requires an analysis of the taxpayer’s income and assets. The presence of either sufficient income or significant asset equity can often disqualify a taxpayer from CNC status. But is this true if the taxpayer can still demonstrate that enforced collection would create genuine economic hardship by preventing payment of basic living expenses?
What Did the Court Find in This Case?
This brings us to this court case. The U.S. Tax Court focused on whether the IRS Appeals Office abused its discretion in determining that the taxpayer had the ability to pay his tax debt and was therefore ineligible for Currently Not Collectible status.
The court recited the established legal standard for CNC eligibility, stating that to be entitled to this collection alternative, a taxpayer must demonstrate that, on the basis of their assets, equity, income, and expenses, they have no apparent ability to make payments on the outstanding tax liability. The court further noted that an account may not be placed in CNC status if the taxpayer has income or equity in assets unless enforced collection would cause hardship, which exists if the taxpayer is unable to pay reasonable basic living expenses.
Given the records presented, the court noted that the taxpayer’s own financial disclosures proved fatal to his CNC request. His Form 433-A revealed monthly disposable income of $2,628, which alone suggested an ability to make payments toward his tax debt. More significantly, his substantial assets included $33,300 in bank accounts, investments worth $182,176, and equity in real property of $236,995, plus additional equity in vehicles and access to credit.
The court emphasized that the taxpayer failed to show that enforced collection would make him unable to pay basic living expenses as necessary to establish hardship. Without this showing, the combination of disposable income and substantial asset equity directly contradicted any claim of inability to pay. Based on this analysis, the court concluded that the IRS Appeals Officer did not abuse her discretion in determining that the taxpayer’s significant income and equity in assets rendered him ineligible for CNC status.
So the answer seems to be that a taxpayer can qualify for CNC if they have signficant assets. They would still just need to make the showing that the collections would render them unable to pay their basic living expenses. This could be the case if the taxpayer had little income and only illiquid assets that they could not borrow against or easily sell. That was not the fact pattern in this case, however.
The Takeaway
Currently Not Collectible status might not be available to those who simply prefer to preserve their assets rather than pay their tax debts. This case shows that having significant equity in assets, combined with disposable income, will likely disqualify a taxpayer from CNC status when the assets could reasonably be used to satisfy the tax obligation. CNC status requires hardship that would prevent payment of basic living expenses. Assets may be scrutinized by the eiRS, and taxpayers have to be prepared to demonstrate why accessing those assets would create genuine economic hardship beyond mere lifestyle changes to qualify for this type of relief.