Background and why CNC matters

Small business cash flow can swing quickly. When revenue drops or unexpected expenses hit, owners may fall behind on payroll, income, or excise taxes. CNC gives eligible taxpayers breathing room by pausing most IRS collection actions while the agency monitors whether the debt can realistically be collected now. In my 15 years advising small businesses, CNC often becomes the practical first step to avoid enforced collection while owners reorganize operations or seek other resolution options.

What the IRS looks at (the core test)

  • Reasonable Collection Potential (RCP): The IRS assesses whether the government can collect the debt now based on the taxpayer’s monthly cash flow and asset equity. If monthly income minus allowable living and business expenses produces little or no RCP, CNC may be appropriate. (IRS collection guidance and Form 433 series explain the calculation.)
  • Income and expenses: The IRS compares gross receipts, owner draws/salaries, and documented monthly expenses. Both personal and business expenses matter for owner-operators.
  • Assets and equity: Bank balances, accounts receivable, inventory, and equity in real estate or vehicles are evaluated. The IRS may consider selling non-essential assets to pay a debt.
  • Nature of the tax: Some tax types (for example, unpaid trust-fund payroll taxes) are treated more aggressively by the IRS and are less likely to be placed CNC without a strong showing of inability to pay.

How to request CNC — step-by-step

  1. Collect financial records: 3–6 months of bank statements, recent profit-and-loss, balance sheet, pay records, and proof of monthly household expenses (rent/mortgage, utilities, medical bills, child care). Document one-time losses or disasters.
  2. Complete the right form: Individuals use Form 433-A (Collection Information Statement for Individuals); businesses typically use Form 433-B (Collection Information Statement for Businesses). You may also submit financial documentation directly in response to an IRS Collection Due Process or CP/Letter. (See IRS forms and instructions for the latest versions.)
  3. Send your package or work with the IRS examiner: In many cases the IRS will request the Collection Information Statement and follow up with specific questions. Keep communication documented and respond on time.
  4. Ask for a hardship evaluation: If your financial condition leaves you unable to meet basic living or necessary business expenses, make that clear in the statement and attach supporting evidence.

What CNC does — and does not — do

  • It pauses most collection enforcement actions such as bank levies and wage garnishments while CNC is in effect.
  • It does not remove the tax debt. Interest and penalties generally continue to accrue, and the debt remains collectible later if your situation improves.
  • The statute of limitations on collection (generally 10 years from assessment) continues to run while a debt is CNC; CNC does not extend the collection period.
  • A lien previously filed usually remains unless you take separate steps to release or subordination; CNC does not automatically release a Notice of Federal Tax Lien. For practical steps if a lien exists, see: Steps to Take If the IRS Files a Tax Lien Against You (internal resource).

Duration and review

CNC is a temporary status. The IRS periodically reviews CNC cases and may re-contact you for updated statements. If your income improves or you have realizable assets, the IRS can resume collection. In my experience, proactive updates to the IRS when finances change reduce surprises and the risk of levies restarting.

Alternatives and next steps to consider

  • Partial-payment installment agreements: The IRS may accept a reduced monthly payment plan based on ability to pay. See our guide: Calculating Monthly Payment Offers for an IRS Installment Agreement: What the IRS Considers (internal resource).
  • Offer in Compromise (OIC): If your business’s RCP is very low and you can’t realistically ever pay the full debt, an OIC could be appropriate; proper documentation is critical. Read: How the IRS Reviews Assets for Offers in Compromise: What Counts (internal resource).
  • Professional help: An experienced enrolled agent or tax attorney can prepare the Collection Information Statement, negotiate with the IRS, and advise whether CNC, installment, or OIC gives the best result.

Common mistakes I see

  • Submitting incomplete or inconsistent documentation — always match bank statements to reported income.
  • Assuming CNC stops penalties and interest — it does not.
  • Failing to report changes — income increases or asset sales should be reported promptly to the IRS.

Authoritative references

  • IRS Collection Information Statement—Form 433-A and Form 433-B (see IRS.gov Forms & Publications)
  • IRS guidance on collection and hardship evaluations (IRS collections pages)
  • Taxpayer Advocate Service reports and guidance on collections

Professional disclaimer

This article is educational and reflects common IRS practices as of 2025 and my 15 years of practice advising small business clients. It is not individualized tax advice. For help with your facts, consult a qualified tax professional or the IRS directly.

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