Quick comparison
- Installment Agreement (IA): You make fixed or variable monthly payments toward the balance. Collection actions like levies can be avoided if you stay current, but interest and penalties continue to accrue.
- Currently Not Collectible (CNC) Status: The IRS temporarily suspends active collection (levies, garnishments) because you don’t have the ability to pay. The debt remains, interest and penalties usually continue, and the IRS may periodically review your finances.
This article explains how each option works, who qualifies, how to apply, practical tradeoffs, and steps I use in practice to advise clients facing tax collections.
How each option works (practical view)
Installment Agreement
An Installment Agreement is a negotiated payment plan with the IRS to pay your assessed tax balance over time. The IRS offers multiple IA types (short-term, long-term, direct debit, partial payment) and an online application for many cases. The IRS will accept an IA when the taxpayer can demonstrate a realistic monthly payment that covers some portion of the debt without causing undue hardship.
What to expect:
- You submit income and expense information (typically via Form 433‑F, or online via the IRS Online Payment Agreement tool) when required to support your payment offer.
- The IRS usually permits IA requests online for balances under certain limits; otherwise, phone or written applications are required (IRS as primary source).
- Interest and penalties continue to accrue until the balance is paid in full. If you miss payments or default, the IRS can terminate the agreement and resume collection including levies.
Practical note from my practice: when a client has a steady, if tight, cash flow I prefer negotiating an IA that uses direct debit. Direct debit lowers default risk, reduces setup fees in many cases, and improves the odds the IRS will accept the proposal.
Learn how to apply and documentation needed in our guide to applying for an IRS Installment Agreement: How to Apply for an IRS Installment Agreement (types & eligibility).
Currently Not Collectible (CNC) Status
CNC is a suspension of active collection when the IRS determines that levying you would leave you unable to meet necessary living expenses. CNC does not forgive the debt — it simply pauses collection.
Key points:
- To request CNC, you must provide complete financial information showing your income and allowable expenses. The IRS uses its Collection Financial Standards and local expense allowances to evaluate your ability to pay.
- While in CNC status, the IRS generally won’t levy bank accounts or wages. However, penalties and interest usually continue to grow, and the IRS may file or keep a Notice of Federal Tax Lien where applicable.
- The IRS periodically reviews CNC cases; if your financial situation improves, collection activity may resume.
In practice I’ve used CNC for clients facing temporary but serious hardships (loss of income, major medical expenses). CNC buys breathing room but is not a long-term debt solution if your income can support payments later.
For a deeper list of financial documentation the IRS expects during a CNC evaluation, see: Currently Not Collectible Status: Financial Documentation the IRS Expects.
Eligibility: who should consider each option
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Consider an Installment Agreement if:
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You have predictable monthly income that can support a regular payment.
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You want to resolve the debt on a schedule and avoid prolonged uncertainty.
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You prefer to reduce exposure to liens or administrative hassles by cooperating with the IRS.
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Consider CNC if:
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Your necessary living expenses exceed your income and you have no reasonable ability to make monthly payments.
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You are temporarily unemployed, severely ill, or otherwise unable to earn income.
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You need immediate suspension of levy actions while you stabilize finances.
Remember: CNC is appropriate when payments are not realistic now; an IA is appropriate when payments are realistic even if small.
Pros and cons (decision factors)
Installment Agreement
Pros:
- Provides a structured path to pay off the debt.
- Often reduces the likelihood of aggressive collection actions if you remain current.
- Easier to refinance or plan personal finances with known monthly obligations.
Cons:
- Interest and penalties continue.
- Defaulting can trigger levy or lien activity and bring higher costs.
- Setup fees may apply depending on the IA type and how you apply.
Currently Not Collectible
Pros:
- Immediate relief from levies and garnishments in many cases.
- Time to stabilize finances without active collection pressure.
Cons:
- Debt remains and will usually accrue interest and penalties.
- The IRS may still file or maintain liens, and they will periodically review your case.
- CNC does not stop the IRS 10‑year collection statute clock (the period the IRS has to collect the tax), so the debt continues to exist while the statute runs.
Steps to choose and apply (practical checklist)
- Gather your financial picture
- Recent pay stubs, bank statements, proof of unemployment or medical expenses, monthly bills, and last two tax returns.
- Calculate realistic monthly cash flow
- Subtract necessary living expenses from take‑home pay to see what you could afford. Use conservative estimates.
- Evaluate short‑term vs long‑term prospects
- If you expect work/income to return within months, an IA with small payments may be better. If recovery is uncertain or long, CNC may be appropriate.
- Consider mixed approaches
- A Partial Payment Installment Agreement (PPIA) combines IA structure with reduced monthly payments and is an option if you can pay something now but not the full amount over the statutory collection period.
- Apply using the right channel
- For many Installment Agreements, use the IRS Online Payment Agreement (OPA) tool. Where the IRS requires forms, prepare Form 433‑F or Form 433‑A/B and Form 9465 (Installment Agreement Request) as applicable (IRS guidance). For CNC, call the IRS Collection division or work with a tax professional to submit the necessary financial disclosures.
- Keep documentation and stay in contact with the IRS
- If circumstances change, proactively request a modification. Don’t ignore IRS notices — that increases enforcement risk.
Common pitfalls and myths
- Myth: CNC eliminates the debt. Reality: CNC only suspends collection activity; the debt (plus interest and penalties) remains.
- Myth: Filing for an IA or CNC will make the IRS stop assessing penalties or interest. Reality: Interest and penalties usually continue unless another relief option applies.
- Pitfall: Underreporting expenses to qualify for CNC. Provide truthful, supportable documentation — misrepresentation can lead to denial or penalties.
How the choices affect liens, levies, and credit
- Levies: CNC generally halts levies; an IA can prevent levies as long as you meet the terms. If you default on an IA, the IRS can resume levy actions.
- Liens: The IRS may file a Notice of Federal Tax Lien independent of CNC; a lien can encumber your property. Note that since 2018 major credit bureaus no longer include most tax liens on consumer credit reports, but public lien records and the lien itself can still affect lenders’ underwriting decisions (see Consumer Financial Protection Bureau guidance).
Sources: IRS guidance on collection options and Currently Not Collectible status (IRS.gov), and consumer credit information from the Consumer Financial Protection Bureau (consumerfinance.gov).
Examples from practice (illustrative)
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Client A: Owed $18,000 and had steady income but tight cash flow. We negotiated a 48‑month direct debit IA that lowered anxiety, kept the client current, and avoided lien activity. Paying by direct debit reduced the chance of missed payments.
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Client B: Experienced medical catastrophe and lost job. Monthly expenses exceeded income. We documented expenses using the IRS Collection Financial Standards and achieved CNC status for a year while they recovered; later, as income resumed, we converted to a manageable IA.
These examples show CNC and IA can be sequential tools — CNC can buy time until an IA becomes realistic.
When to seek professional help
If you are unsure about how to present financial data, whether to accept a proposed IA amount the IRS suggests, or whether your circumstances might qualify for an Offer in Compromise (a separate option to settle tax debt for less than the full amount), consult a qualified tax professional (CPA, EA, or tax attorney). In my practice, I prioritize gathering complete documentation, estimating realistic payment capacity, and negotiating direct‑debit IAs when feasible to reduce defaults.
Authoritative resources
- IRS — Online Payment Agreement and Installment Agreements information: https://www.irs.gov/payments
- IRS — Currently Not Collectible Status: https://www.irs.gov/businesses/small-businesses-self-employed/currently-not-collectible-status
- Consumer Financial Protection Bureau — credit reports and score resources: https://www.consumerfinance.gov/consumer-tools/credit-reports-and-scores/
Final takeaway
Choose an Installment Agreement if you can reasonably make monthly payments and want a predictable path to pay off your tax debt. Choose CNC if you truly cannot pay without sacrificing basic living needs — but understand CNC is temporary, interest and penalties usually continue, and the IRS may review your situation. Be honest with documentation, stay proactive with the IRS, and consider professional help for complex cases.
Disclaimer: This article is educational and does not constitute individualized tax advice. For decisions about your specific tax situation, consult a qualified tax professional.
