How to Create a Plan To Pay Your IRS Debt
The IRS wants to make it as easy as possible for you to pay your taxes even if you are struggling to pay it in full on the due date. The agency, for example, increased the threshold amount you have to owe them before the agency files a Notice of Federal Tax lien.
File your tax return on time and pay as much as you can. Then consider the options.
Now consider your options:
If you qualify, it might be in your best interest to get a loan for the amount outstanding.
- Interest on a bank loan will usually be lower than penalties and interest charged by the IRS.
- Consider a loan against your assets or even selling some assets to raise enough to pay the IRS in full.
Streamlined Processing of Installments Agreements
The IRS is continuously expanding its criteria for streamlined processing of taxpayer requests for installment agreements.
Online Payment Agreement
Do you owe $50,000 or less, you can apply for an installment agreement.
- The process is seamless, and you will never miss a payment
- Apply online at https://www.irs.gov/payments/online-payment-agreement-application
- If you are not online, file Form 9465.
|Issue||Current Criteria||Streamlined Test Criteria|
|Payment Terms||72 Months or the number of months needed to pay in full before the Collection Statutory Expiration Date||Unchanged|
|Collection Information Statement||If you previously defaulted on an assessed balance of $25,001-$50,000 you have to prove your ability to pay||No verification of ability to pay required any longer|
|Payment Method||Direct Debit Payment or Payroll Deduction required||Direct Debit Payment or Payroll Deduction preferred but not required|
|Notice of Federal Tax Lien|
|Up to $25,000||Determination is not required||No Change|
|$25,000-$50,000||Determination is not required||Determination is not required with the use of direct debit or payroll deduction agreement|
|The use of the direct debit or payroll deduction agreement is mandatory in order to qualify for streamlined IA||Without the use of the direct debit payroll deduction agreement the taxpayer still qualifies for IA, but a Notice of Federal Tax Lien determination will be made.|
Do you owe a balance of tax, penalty, and interest of between $50,000 and $100,000?
- If you do, you may experience accelerated processing of your installment agreement request.
- To qualify your proposed monthly payment must be the greater of your assessed balance divided by 84, OR the amount required to pay your full debt by the Collection Statute Expiration Date.
|Issue||Current Criteria||Streamlined Test Criteria|
|Payment Terms||None||Up to 84 months or the number of months required to pay the full amount before the Collection Statute Expiration Date|
|Collection Information Statement||None|
|If the taxpayer agrees to make payments by direct debit or payroll deduction no verification of ability to pay is required.|
|Payment Method||None||Direct Debit Payment or Payroll Deduction preferred but not required|
|Notice of Federal Tax Lien||None||Determination is required|
|Out of business sole-proprietorship debts||None||Applies|
|Operating businesses with a trust fund tax liability||None||None|
|At the moment 90% of taxpayers qualify to use the IRS’s Online Payment Agreement application. The IRS strongly encourages its use and the selection of the Direct Debit Method of Payment.|
Offer in Compromise
Agreeing with the IRS to settle your tax debt for less than the full amount should always be an option if you experience an economic calamity or are broke.
- The IRS will consider it if what you offer is determined to be the most the agency can realistically collect within a specified time-frame.
- You can test your eligibility at Offer in Compromise Pre-Qualifier tool
How To Get Your Offer In Compromise Accepted
The IRS designed the OIC (Offer In Compromise) for taxpayers who cannot pay their tax liabilities without significant financial hardship. Not all applicants succeed. In 2018, the IRS rejected more than 34,000 applicants 24,000 were accepted. This netted $261.3 million for the IRS. The odds for acceptance is 41 percent, up from 25% ten years ago.
IRS insiders say that applicants need to evaluate several elements to present a successful case to the IRS.
Is An OIC An Option For You?
The IRS will accept you only if:
- You cannot pay the full tax outstanding, or
- You do not owe the tax they consider to be outstanding, to the IRS, or
- Due to unique circumstances, an OIC is in the best interest of the IRS and the taxpayer
- You are eligible in terms of IRS requirements:
- You filed your tax returns
- Received a bill for one or more tax debts included in your offer
- You stay compliant during the current tax year by paying all estimated tax bills
- If you are a business owner or employer, that you remain compliant with all required federal tax deposits during the current tax quarter.
The IRS will investigate your:
- Asset Equity
- Collection Statute Expiration Date
- Information reported on Form 433-A (OIC)
- Level of Education
For example, if an extravagant lifestyle makes it impossible for you to pay your taxes, your application will not succeed. If your lifestyle is an impediment, an installment agreement is a better option for you. In this event, take note of the Six-Year-Rule combined with the One-Year-Rule (IRM 22.214.171.124.1).
You need to fill in a legion of tax forms during an application:
- Form 656: Offer in Compromise
- Form 433-A (OIC): Collection Information Statement for Wage Earners and Self-Employed Individuals. The IRS uses this to determine the extent of your ‘financial hardship.’
- Form 433-B (OIC): Collection Information Statement for Business.
During your application, you have to provide facts and Internal Revenue Manual references in support of your case. Do not:
- Make math errors. Form 433 requires complex calculations. Any mistakes will stop the application until corrected.
- Leave blank spaces
- Subtract negative equity: If you owe more on a property than it’s fair market value, you cannot subtract the negative equity. Report it as zero.
Appeal If Rejected
Use Form 13711 within 30 days after rejection, to appeal. If granted, you will get the opportunity to make a better offer to the IRS.
You have to justify your application to appeal based on documentation relevant in terms of the IRM (Internal Revenue Manual), the Internal Revenue Code, and even Case Law. There is a place for emotional appeal, but this should not be overdone. It should merely be the icing on the cake.
If Appeal Is Rejected
There are several options to consider, each with specific requirements:
- Installment agreements:
For taxpayers who owe $50,000 or less, this will give them up to 72 months t pay off their tax debt. If the statute of limitations cut their repayment short, they can waive it. For taxpayers who owe $50,000 to $100,000, payment plans of up to 84 months are available.
- Payment Extension:
If all you need is some more time to pay your debt, and your account is not already in the care of IRS Collections, you can apply for an extension of up to 120-days. Otherwise you can apply for a 60-day extension.
- Currently not collectible status:
The IRS can award you this status if you owe back taxes and cannot afford to pay. The IRS sometimes grant this status to taxpayers the IRS cannot locate or who died without heirs. This status leads to the end of all collection efforts until further notice. Only those who suffer significant hardship will qualify.
Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.
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