The Reality for Most Tax Resolution Cases

         While it is nice to consider all the possible special scenarios where a taxpayer might use the law to substantially reduce their tax liability (such as an Offer in Compromise). The majority of people will have to pay their debt in full. This is what I never want to tell my clients, however, when the numbers line up in a particular way it is very difficult to get the IRS to budge. The IRS, while overworked and understaffed, has many automated systems in place assisting them in their collections procedures. As a result, most taxpayers will be in a situation where they have to set up an Installment Agreement. This week we will talk about some of the more common payment plans and then dive deep into the more interesting one next week.

 

          Installment agreements are monthly payment plans that can vary drastically from person to person. They are often dictated by the amount of tax past due, the time left on the statute of limitations and the facts and circumstances of the taxpayer. If you or your business owes less than $10,000 in tax you qualify for a Guaranteed Installment Agreement. These are the most lenient agreements where the taxpayer can typically decide how much they want to pay per month and no financial disclosure is necessary. I would not enlist the services of a professional when you qualify for a Guaranteed Installment Agreement as they can easily be set up online and contain little complexity. In fact, most cases that end after my initial consultation with a client are situations where people need Guaranteed Installment Agreements.

 

          Next are Streamlined Installment Agreements, whose realm has expanded in the last few years as the IRS attempts to collect more revenue with less work. The criteria for the extent of financial disclosure necessary and the debt limit thresholds vary by business, individual and the statute of limitations. For example, a business with less than $25,000 in debt can set up a streamlined agreement  with no financial disclosure and pay in 72 months (unless the statute is less). Or an individual with less than $100,000 in tax liability can pay their debt over 84 months (statute depending) and not disclose financial information if they agree to a direct debit payments. Importantly, these agreements require the taxpayer to pay in full over time. Furthermore, whether the IRS decides to file a tax lien against the taxpayer during a streamlined installment agreement depends on a variety of factors and often can require some tactful negotiations to ensure they do not file one. As a professional, there are some situations where I find taxpayers can enter these agreements without expertise, but others where my services can be valuable.

 

          When financial disclosure is necessary for the above payment plans, it usually requires the form Collection Information Statement 433-F. Under the current test criteria, these are only required when a taxpayer does not agree to a direct debit or payroll deduction. Financial statements of these sorts are usually a map on which the IRS can find ways to levy a taxpayer if they become uncooperative so it is ideal to not submit one. In fact, many taxpayers will get on the phone with the IRS and unknowingly pass this information on to the IRS employee for them to fill out. When that very taxpayer misses a few payments because of whatever justifiable reason the IRS knows what bank account to levy once they follow proper procedures. While Streamlined Installment Agreements can be relatively easy to set up, small hurdles like this make the services of an Enrolled Agent very useful.

 

        There are so many nuances and specific circumstances that can influence the terms of an installment agreement that it would take a small book to discuss them all. Next week we will go into the more difficult types of Installment Agreements and also discuss how lien determination plays comes into play. If you have questions or would like to employ my services to set up an Installment Agreement can us at (805)-652-7362 and ask for Ryan or email me at ryan@mktaxpros.com.

 

Good luck!