CARL WATTS & ASSOCIATES

August 19, 2013

www.carlwatts.com
office@carlwatts.com
Washington DC
 tel/fax 202 350-9002
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A while ago we dedicated one of our newsletters to Taxes and Payment Plans you can use to make payments on the taxes you owe.


Whether you already have an Installment Agreement with the IRS or you envision having one, this newsletter is intended to clarify and detail what such an agreement involves.

There are four basic types of installment agreements:

  1. Guaranteed Installment Agreements are for taxpayers who owe $10,000 or less, haven’t filed late or paid late in the previous five years, and agree to pay on time for future years. You are not required to fill out a financial statement (Form 433-F) and the IRS will not file a federal tax lien (which are reported to the credit bureaus). The monthly installment payments will pay off in 36 months or less.
  2. The Streamlined Installment Agreement is for taxpayers with a balance due of $50,000 or less who agree to pay in 72 months at most. The threshold for qualifying for an installment agreement without having to provide financial information was increased from $25,000 to the current $50,000 amount and the timeline for paying was increased to 72 months from 60 months. There’ll be no federal tax lien filed or financial statements.

  3. The Partial Payment Installment Agreement is the type of plan where the monthly payment is based on what you can actually afford and can cover a longer repayment term. You are required to fill out a Form 433-F, the IRS may file a federal tax lien and routinely re-evaluate the terms of the agreement every two years.

  4. With the Non-Streamlined Installment Agreement you need to negotiate an installment agreement with the IRS if your balance due is over $50,000, or you need a repayment term longer than six years.

When applying for a payment plan, keep in mind that the IRS will want you to:

  • File all required tax returns;
  • Consider other sources (loan or credit card) to pay your tax debt in full to save money;
  • Determine the largest monthly payment you can make ($25 minimum); and

  • Know that your future refunds will be applied to your tax debt until it is paid in full.

There are fees you will need to pay for setting up an installment agreement: $52 for a direct debit agreement; $105 for a standard agreement or payroll deduction agreement; or $43 if your income is below a certain level.


There is also a user fee of $45 for reinstating or restructuring existing agreements.


To apply for an installment agreement, you can go online if you owe $50,000 or less in combined individual income tax, penalties and interest; or you can complete and mail Form 9465, Installment Agreement Request.


If you owe more than $50,000, you will also need to complete Form 433-F, Collection Information Statement. If you must complete this form you will be required to submit the following information: all of your accounts and lines of credit, real estate holdings, other assets such as cars, recreational vehicles, and boats, credit cards, wage information, non-wage household expenses, monthly necessary living expenses, and other additional information that may be relevant to the case. It is imperative that this information be accurate and truthful.


Once an installment agreement has been reached, you will need to:

  • Pay at least your minimum monthly payment when it's due (direct debit or payroll deductions can make this easy);
  • Include your name, address, SSN, daytime phone number, tax year and return type on your payment;
  • File all required tax returns on time;
  • Pay all taxes you owe in full and on time;
  • Continue to make all scheduled payments even if you apply your refund to your account balance; and
  • Ensure your statement is sent to the correct address.
The IRS Installment
Agreement
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Once you receive approval of your installment agreement, you and the IRS are bound by the terms of the agreement, unless any of the following happens:

  1. You fail to file your tax returns or pay taxes that arose after the agreement was entered into. Although IRS computers do not continue to review your finances, they do monitor you for filing future returns and making promised payments.

  2. You miss a payment. Under the terms of all installment agreements, payments not made in full, and on time, can cause the agreement to be revoked immediately. In practice, the IRS usually waits 30 to 60 days before revocation -- at least on the first missed payment. You are entitled to a warning or a chance to reinstate the agreement.

  3. Your financial condition changes significantly -- either for the better or worse. The IRS usually won't find out about this unless you tell. The IRS may review your situation every year or two, however, and require you to submit a new Form 433-A in order to continue your agreement.

  4. The IRS discovers that you provided inaccurate or incomplete information as part of the negotiation. For example, you may have omitted to mention certain valuable assets.

It is important to know that the IRS must send you a notice of default before it can end your installment agreement and start collecting again.  After the IRS sends the notice of default, you have 30 days to file an appeal to renegotiate the installment agreement.  

If you file the appeal timely, the IRS cannot take any collection action or enforce the default until your appeal hearing is completed. 

If you are unable to repay your IRS debt, other options available to you include offer in compromise, bankruptcy or being placed in IRS uncollectible status.

The IRS have several options available if your ability to pay has changed and you are unable to make payments on your installment agreement You must contact the IRS immediately. Failure to do so may result in a IRS levy action or a Notice of Federal Tax Lien. Whichever action is taken against you, your credit standing could be adversely impacted. Furthermore, these actions may cause serious financial difficulties.

Have your financial information available (e.g., pay stubs, lease or rental agreement, mortgage statements, car lease/loan, utilities) and call the appropriate number to receive assistance: individual taxpayers - 800-829-1040; business taxpayers - 800-829-4933. Call the IRS as soon as possible to renegotiate the agreement terms.

If your circumstances change and you notify the IRS, they may be willing to change the terms of your IRS tax installment agreements. Typically, as long as you are not behind on payments and you have filed all of your tax returns, these changes are not too complicated to negotiate. Options could include reducing the monthly payment to reflect your current financial condition.

While the IRS considers your request to modify or terminate the installment agreement, you must comply with the existing agreement.

We always advise you to get help from a tax professional in all your dealings with the IRS, but when negotiating an installment agreement or a change of its terms, pro help is undoubtedly a must.