Income tax, state; creation of currently not collectible status.
HB2549 creates a new “currently not collectible” (CNC) status for individual Virginia income taxpayers who can show that collection would create or worsen an undue hardship. The Department of Taxation would have to create an application form, and the Tax Commissioner would be required to place a qualifying taxpayer into CNC status. The bill directs the Commissioner to develop hardship guidelines, look to IRS CNC procedures for guidance, and may presume that a taxpayer approved for federal CNC status also qualifies at the state level.
While a taxpayer is in CNC status, the Department may not attempt to collect the tax debt, may not file a memorandum of lien, and must allow the taxpayer to remain in the status only if the taxpayer stays domiciled in Virginia, files past-due returns, keeps current filing obligations, and provides requested financial information. The taxpayer must also notify the Department of relevant changes in circumstances and reapply annually within two years of the filing deadline. The bill does not apply to corporations, partnerships, or LLCs.
The bill also amends existing collection provisions to make clear that unpaid income taxes become collectible immediately except where CNC status applies, and that liens may not be filed against a taxpayer while CNC status is in effect. It further ties the new CNC status into the installment-agreement statute by requiring the Tax Commissioner to offer installment plans of up to five years to qualifying individual income taxpayers unless CNC status is approved instead. Existing lien and installment-agreement enforcement rules remain in place for taxpayers who do not qualify for CNC treatment.
The overall sentiment appears mixed to supportive in principle but divided on policy details. The bill advanced through subcommittee, full Finance, and the House, but each step in committee was close, indicating significant skepticism among some members. It later passed the House narrowly and then was passed by indefinitely in Finance and Appropriations with a unanimous vote, suggesting the proposal did not ultimately move forward despite some support.
The main point of contention is the balance between taxpayer relief and tax collection enforcement. Supporters likely viewed the bill as a hardship-based safety valve for low-income or financially distressed individuals, especially by aligning state practice with IRS CNC standards. Opponents likely worried about reduced collection tools, administrative burden, the breadth of the hardship standard, and the requirement that the Department suspend collection and lien activity for eligible taxpayers.
The bill would add a new state tax-debt status for individual income taxpayers and require the Department of Taxation to suspend collection activity, including lien filing, for taxpayers found to face undue hardship. It would also modify Virginia’s income tax collection and installment-agreement statutes so that CNC status becomes an express exception to immediate collection and a factor in whether installment plans are offered. The practical effect would be to create a formal hardship-based pause on state collection efforts for qualifying individuals, while leaving business entities outside the program.
Discussion and voting history suggest the bill was viewed as a taxpayer-relief measure with some appeal, but also as a significant change to tax collection policy. It moved forward at several stages, yet the close subcommittee, committee, and House votes indicate notable resistance. The final unanimous action to pass it by indefinitely suggests the bill ultimately lacked enough support to continue, despite earlier approval.
The central disagreement is whether the state should mirror federal CNC-style relief for individuals who cannot realistically pay without undue hardship. Supporters likely emphasized fairness, financial hardship, and consistency with IRS procedures, while critics likely focused on the loss of collection leverage, the possibility of abuse or inconsistent hardship determinations, and the administrative demands placed on the Department of Taxation. The exclusion of corporations, partnerships, and LLCs also suggests the bill was aimed narrowly at individual taxpayers, which may have limited but not eliminated concerns about scope and enforcement.