If the IRS already agreed you can't pay, why does it still take your refund?
Clients ask me this every filing season. The answer is that "currently not collectible" stops most collection, but not refund offsets. There is a way to ask the IRS to release a refund in a hardship. Most people never hear about it, and the window to ask is short.
Congress is also working on a change. On September 30, 2026, the Senate passed a bill that would make part of this automatic. It isn't law yet. Here's how it works today, and what the bill would do.
What a refund offset is
When you owe federal tax for an earlier year and file a return showing a refund, the IRS can apply that refund to the old balance. That's an offset. The authority is in section 6402 of the tax code.
You usually find out from a notice after the money is already gone.
That moment is hard. Maybe the refund was already promised to the landlord or the mechanic. You filed, you waited, and the money you were counting on is gone.
Federal tax debts aren't the only thing that can take a refund. Past-due child support, federal student loans and other federal debts, state income tax debts, and certain unemployment compensation debts can also be offset. Those go through the Treasury Offset Program, and the rules for those are stricter.
CNC, and why offsets keep happening
If the IRS reviews your finances and decides that paying would leave you unable to cover basic living expenses, it can put your account in "currently not collectible" status, or CNC.
CNC is real relief. Levies and most collection stop. But the debt stays, and interest and penalties keep adding up.
And the IRS keeps taking refunds. CNC is a decision not to chase you for money right now. It isn't a decision to pass up money that comes to the IRS on its own, like a refund on a return you file.
The IRS refund offset bypass CNC accounts can still request today
There is an exception. It's called an offset bypass refund, or OBR. The IRS can skip the offset and send you some or all of the refund if you show an economic hardship.
Who qualifies. Generally, someone whose income doesn't cover reasonable basic living expenses. Think of an eviction notice, a utility shutoff, or a car you need to get to work. You'll need to show your income, your expenses, and the specific need.
How much. An OBR is limited to what it takes to relieve the hardship. If the refund is $1,000 and the hardship is $600 in rent, expect $600 released and the rest applied to the debt.
The timing. This is where most people get caught. The request has to be made, and approved, before the IRS posts your return and applies the offset. Once the offset happens, the IRS generally won't reverse it unless a clerical error kept a timely request from being processed. In practice that means asking right when you file, or even before.
How to ask. Two routes:
- Directly with the IRS. You or your representative can call and ask for an OBR, with hardship documentation ready.
- Through the Taxpayer Advocate Service. File Form 911, Request for Taxpayer Advocate Service Assistance, with your local TAS office along with a copy of your return. File the original return with the IRS at the same time. TAS says it can start an OBR before or along with the filing, but it can't help once the offset has already happened. Call the local office to confirm your Form 911 was received and assigned.
What blocks it. Generally, if you also have a debt in the Treasury Offset Program, such as child support, a federal student loan, or state tax, the IRS won't bypass the offset. An OBR is a tool against the IRS's own tax offset, not those.
What Section 106 of the Senate bill would change
The bill is H.R. 5349, the Taxpayer Assistance and Service Act (the "TAS Act"). Section 106 is called "Automation of refund offset bypass."
It would require the IRS to automatically refund the Earned Income Tax Credit part of your refund, without a request, if:
- you were classified as currently not collectible before you requested the refund (in other words, before you filed the return), and
- the amount released isn't more than the EITC you're allowed for that year.
The goal is a hardship process that doesn't depend on knowing to ask.
What it wouldn't change
- Non-IRS offsets still apply. Child support, student loans and other Treasury Offset Program debts can still take the EITC.
- Only the EITC part. Other refundable amounts, like the refundable child tax credit, and the rest of the refund can still be applied to your IRS balance.
- You still need CNC first. If you're not CNC before the refund request, the automatic release wouldn't apply.
- Regular OBRs stay. You could still ask for a hardship bypass the usual way.
Where it stands
The House passed H.R. 5349 by voice vote on December 1, 2025. On September 30, 2026, the Senate passed it by unanimous consent with a full substitute text, which is where the TAS Act provisions, including Section 106, came in. The House now has to agree to the Senate's version before it can go to the President.
Even if it's enacted, Section 106 applies only to offsets made more than 12 months after enactment. Until then, the current rules apply.
What to do now
- Know your status. Confirm whether your account is actually in CNC. Your IRS account transcript or a call can confirm it.
- Expecting a refund? Plan before you file. Don't file and hope.
- Gather hardship proof first. Income, rent or mortgage, utilities, car, medical costs, and any shutoff or eviction notice.
- Ask for the OBR at filing. Call the IRS, or send Form 911 to TAS with a copy of the return.
- Check for non-IRS debts. If you owe child support, a student loan or state tax, an OBR likely won't help.
- File anyway. Not filing to protect a refund just adds failure-to-file penalties and loses the refund over time. See why you should file even if you can't pay.
- Adjust withholding if offsets keep happening. A smaller refund means less for the IRS to take, and more in your paycheck.
FAQ
Can I get the refund back after the offset? Generally no. The IRS reverses an offset only in narrow cases, like a clerical error that kept a timely OBR request from being processed.
Does CNC stop refund offsets? No. CNC stops most collection, but refunds still go to the debt unless you get an OBR.
Is Section 106 law? No. The Senate passed it on September 30, 2026. The House still has to agree. Even if it's enacted, it applies only to offsets more than 12 months later.
Would the bill protect my whole refund? No. Only the EITC part, only if you were CNC first, and not from child support, student loans or other non-IRS debts.
Do I have to go through the Taxpayer Advocate? No. You can ask the IRS directly. TAS can help when the timing is tight or the IRS isn't responding.
Related: File even if you can't pay · Should I overpay the IRS? · Loan vs. payment plan
Official sources: H.R. 5349, 119th Congress · Accounting Today: Senate unanimously passes TAS Act
On CNC and expecting a refund? Message me or call (718) 510-3166.
I help with IRS, New York, New Jersey, Connecticut and Pennsylvania tax problems.
General info, not advice for your specific case.