Virginia Now Offers Currently Not Collectible Status to Taxpayers Who Have IRS CNC Status
Virginia taxpayers who cannot afford to pay their delinquent income taxes may now have an important new collection alternative.
The Virginia Department of Taxation has implemented a Currently Not Collectible (CNC) program modeled on the IRS program of the same name. Under Virginia Tax’s current procedure, an individual taxpayer who has already been granted CNC status by the IRS can ask Virginia to provide similar relief from state tax collection.
Even more significantly, the Virginia General Assembly enacted legislation in 2026 that will require Virginia Tax to recognize IRS CNC determinations and provide comparable Virginia collection protections beginning July 1, 2027.
The Department, however, has not waited for that law to take effect. Virginia CNC relief is available now under the Department’s administrative program.
What Is Currently Not Collectible Status?
The IRS may classify a taxpayer’s account as Currently Not Collectible when the taxpayer cannot pay the tax without being unable to meet necessary living expenses.
CNC does not eliminate the tax debt. Interest and applicable penalties generally continue to accrue, and the government can resume collection if the taxpayer’s financial circumstances improve.
What CNC can do is provide critically important relief from active enforced collection. For a taxpayer who is unable to pay the IRS without financial hardship, federal CNC status can generally stop active collection measures such as levies while the taxpayer remains unable to pay.
Until recently, obtaining CNC status from the IRS did not necessarily solve the same taxpayer’s Virginia collection problem.
Virginia Previously Did Not Follow an IRS CNC Determination
Virginia Tax historically took the position that an IRS determination that a taxpayer was Currently Not Collectible did not control Virginia’s collection of the taxpayer’s state taxes.
For example, in Public Document 24-32, Virginia Tax considered a taxpayer who had obtained CNC status from the IRS but also owed Virginia income taxes. The Department concluded that the federal CNC determination did not prevent Virginia from continuing to collect its own assessments.
Thus, a taxpayer could be financially distressed enough that the IRS agreed not to collect, while Virginia nevertheless continued its own collection efforts. That situation has now changed.
How Virginia’s New CNC Policy Developed
The change has developed over several years. In 2023, a Virginia Tax workgroup studying installment agreements and collection alternatives specifically considered the absence of a Virginia procedure comparable to federal Currently Not Collectible status. The workgroup recommended that Virginia Tax consider creating a nonpayment alternative similar to IRS CNC.
The issue returned to the General Assembly in 2025. House Bill 2549 proposed a more extensive Virginia CNC program under which taxpayers could establish financial hardship directly with Virginia.
The Senate Finance and Appropriations Committee did not enact that proposal. Instead, it asked Virginia Tax to study CNC further. The Department convened another stakeholder workgroup to examine both wage garnishment and Currently Not Collectible procedures.
That workgroup studied the federal CNC program and recommended that Virginia adopt a similar approach. Virginia Tax subsequently reported that the Department implemented a Virginia CNC program at the workgroup’s request. That administrative program is now operating.
How to Obtain Virginia CNC Status Today
Virginia Tax’s current instructions are relatively simple. The taxpayer must first obtain Currently Not Collectible status from the IRS.
Once the IRS has granted CNC status, the taxpayer can ask Virginia Tax for corresponding state CNC treatment. Virginia Tax currently instructs taxpayers to provide either an IRS account transcript showing the taxpayer’s current CNC status or an official IRS notice establishing the taxpayer’s CNC status.
The request is submitted to Virginia Tax’s Collections/OIC unit. This procedure has an important practical advantage: Virginia is able to rely upon the financial-hardship determination the IRS has already made rather than necessarily requiring the taxpayer to establish the same financial circumstances all over again in a separate Virginia proceeding.
What Does Virginia CNC Do?
Virginia Tax describes CNC as a temporary delay in collection activity for taxpayers who are experiencing financial hardship. The Department specifically identifies wage garnishments and bank levies as examples of collection actions that may be delayed.
CNC does not compromise or forgive the underlying Virginia tax liability. The taxes remain due, and penalties and interest may continue to accrue. Virginia also states that CNC status is subject to periodic review.
There are, however, important details about the new program that Virginia Tax’s currently published guidance does not yet answer. Among other things, the Department has not clearly published rules explaining exactly how long Virginia CNC status ordinarily lasts; when and how CNC must be renewed; how Virginia tax liens are treated while a taxpayer is CNC; whether Virginia tax refunds continue to be offset against the liability; how additional tax assessments are handled; precisely which collection activities are suspended; and what financial or other changes cause Virginia CNC status to terminate.
Taxpayers should therefore not assume that every procedural rule governing IRS CNC necessarily applies to Virginia CNC.
The General Assembly Has Now Put CNC Into Virginia Law
In 2026, the General Assembly enacted House Bill 488. The legislation adds a new subsection D to Virginia Code § 58.1-105 requiring Virginia Tax to recognize Currently Not Collectible status granted by the Internal Revenue Service and offer taxpayers with federal CNC status a similar Virginia status providing individual income taxpayers comparable protections from collection activities.
The new law also requires Virginia Tax to develop guidelines explaining how taxpayers apply for the status and to make that information publicly available. The statutory provision becomes effective July 1, 2027.
That effective date should not be misunderstood. Virginia taxpayers do not have to wait until July 2027 to seek CNC treatment. Virginia Tax has already implemented an administrative CNC program. The 2026 legislation makes recognition of federal CNC a statutory requirement beginning in July 2027.
Why This Matters for Taxpayers Who Owe Both the IRS and Virginia
For taxpayers facing serious financial problems, the new Virginia policy can eliminate an important gap in collection relief.
Consider a taxpayer who owes substantial income taxes to both the IRS and Virginia and whose income is barely sufficient to pay necessary household expenses. After reviewing a financial statement and supporting documentation, the IRS determines that the taxpayer has no present ability to make tax payments and places the federal accounts in Currently Not Collectible status.
Under Virginia’s former approach, the taxpayer could nevertheless remain exposed to Virginia wage garnishments, bank levies, and other collection measures. Under the Department’s new procedure, that taxpayer can use the IRS CNC determination as the basis for requesting corresponding Virginia CNC protection.
For financially distressed taxpayers, coordinating the federal and Virginia collection cases can therefore be extremely important.
CNC Is Not Always the Best Long-Term Solution
Currently Not Collectible status is only one of several possible solutions for delinquent tax liabilities. Depending upon the taxpayer’s circumstances, alternatives can include an installment agreement, an Offer in Compromise, penalty relief, challenging an incorrect assessment, allowing legally enforceable collection periods to expire, or, in appropriate circumstances, addressing dischargeable income tax liabilities through bankruptcy.
The appropriate solution depends not only on what a taxpayer can afford today, but also on such matters as the taxpayer’s assets, future income prospects, age of the tax liabilities, applicable collection limitation periods, and whether the taxpayer’s financial condition is temporary or long-term.
For some taxpayers, however, obtaining IRS CNC status followed by corresponding Virginia CNC treatment may provide the immediate protection needed to stop enforced collection while a longer-term solution is evaluated.
Sources and Further Reading
Virginia Department of Taxation – Temporary Delay of Collection Activity (Currently Not Collectible)
https://www.tax.virginia.gov/currently-not-collectible
Virginia Department of Taxation – Wage Garnishment & Currently Not Collectible (CNC) Workgroup
https://www.tax.virginia.gov/wage-garnishment-currently-not-collectible-cnc-workgroup
Virginia Department of Taxation – Public Document 24-32
https://www.tax.virginia.gov/laws-rules-decisions/rulings-tax-commissioner/24-32
Virginia General Assembly – HB 488 (2026)
https://lis.virginia.gov/bill-details/20261/HB488
Virginia Department of Taxation – 2023 Installment Agreement Workgroup Final Report
https://rga.lis.virginia.gov/Published/2023/RD640/PDF
Disclaimer: This article provides general information about Virginia and federal tax collection procedures and is not intended as legal advice concerning any particular taxpayer’s circumstances.