The LT39 confirms that the IRS has placed your account in Currently Not Collectible (CNC) status. This means the IRS has determined that you cannot afford to pay your tax debt at this time without creating a financial hardship. Active collection is suspended. No levies. No garnishments. No new collection contacts.
What CNC Does and Doesn't Do
CNC stops collection activity. The IRS won't call you, send you to a Revenue Officer, or levy your assets while the account is in CNC status. You'll still receive annual balance reminders (CP71 or CP71C), and interest and penalties continue to accrue, but no enforcement action is taken.
CNC does not eliminate the debt. The balance remains on your account. Interest and the failure-to-pay penalty (0.5% per month) continue to accrue. The only thing that eliminates the debt is payment, an accepted offer in compromise, or the expiration of the Collection Statute Expiration Date (CSED).
The CSED Strategy
For many taxpayers in CNC status, the real strategy is time. The IRS has 10 years from the date of assessment to collect. If you can't afford to pay and your CSED expires in 4 years, CNC status lets you run out the clock. The debt expires, the lien is released, and your account balance goes to zero.
This doesn't work for everyone. If you have significant assets, the IRS may file a lien to protect its interest. If your income increases substantially, the IRS can pull you out of CNC status and resume collection. CNC is reviewed periodically, and the IRS may request updated financial information.
How to Stay in CNC
File all future returns on time. Pay all future taxes on time. If the IRS requests updated financial information, provide it promptly. If your income increases significantly, the IRS may determine you can now afford to pay and remove you from CNC status.
CNC vs. Other Options
CNC is the right choice when you genuinely can't afford to pay and the CSED is approaching. If you have assets or income that the IRS could eventually reach, an offer in compromise may be a better long-term solution because it eliminates the debt permanently rather than just delaying collection.
If you've received an LT39 or want to know if you qualify for CNC status, call us at (813) 229-7100.