Monday, April 18, 2011

IRS Installment Agreement -- What You Need to Know About IRS Payment Plans


BEFORE YOU AGREE TO AN 

IRS INSTALLMENT AGREEMENT

READ THIS INFORMATION






Setting Up an Installment Agreement


An IRS payment plan or installment agreement will allow you to pay your back tax debt in smaller, more manageable amounts. IRS payment plans or Installment agreements generally require equal monthly payments. The amount of your installment payments and the number of installment payments that you make will be based on the amount you owe and your ability to pay that amount within the time the IRS can legally collect payment from you.

What You Need to Consider Before You Agree to an Installment Agreement

You need to be aware that an IRS payment plan or installment agreement is more costly than paying all the taxes you owe now. As with most revolving credit arrangements, the IRS will charge interest and penalties on your unpaid portion of the back tax debt.

Is Your Back Tax Debt the Accurate and Can Your IRS Tax be Reduced?

Just because the IRS claims you owe a certain amount, does it mean that the amount of your back tax debt cannot be reduced.

Are you able to reduce your back tax debt due to reasonable cause?

You may be able to receive a Penalty Abatement due to "reasonable cause". A reasonable cause for having not filed your taxes on time or having paid your taxes on time may be due to a multiple of reasons, such as: 

1. Medical
2. Divorce
3. Loss of Income
4. Bad Tax Advice
5. Death
6. Substance Abuse

Can You be Declared Currently not Collectible?

If you do not have enough disposable income to pay your back tax debt, you may be declared to be Currently not Collectible (CNC). The IRS has a complicated formula to determine how much you can pay in an installment agreement. 

Do not agree to any Installment Agreement until you find out if you can be declared Currently not Collectible.

Are You eligible and Qualified for an Offer in Compromise?

Before you agree to an IRS payment plan or Installment Agreement, find out if you are qualified and eligible for an IRS settlement through the Offer in Compromise program. Any payments to be made regarding your back tax debt will be based on your Offer amount. 

  1. Offer in Compromise acceptance: The IRS will accept an offer in compromise when it is unlikely that your tax liability can be collected in full and the amount offered reasonably reflects collection potential. 
  2. An Offer in Compromise is a legitimate alternative to declaring a case Currently not Collectible or to a protracted installment agreement. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the Government.
  3. In cases where an Offer in Compromise appears to be a viable solution to a tax delinquency, the Service employee assigned the case will discuss the compromise alternative with the taxpayer and, when necessary, assist in preparing the required forms. The taxpayer will be responsible for initiating the first specific proposal for compromise. 
  4. The success of the compromise program will be assured only if taxpayers make adequate Offer in Compromise proposals consistent with their ability to pay and the IRS makes prompt and reasonable decisions. Taxpayers are expected to provide reasonable documentation to verify their ability to pay. The ultimate goal is a Offer in Compromise which is in the best interest of both the taxpayer and the IRS. Acceptance of an adequate Offer in Compromise will also result in creating for the taxpayer an expectation of and a fresh start toward compliance with all future filing and payment requirements.
Tax Liens and Installment Agreements

Even if you set up an installment agreement, the IRS may still file a Notice of Federal Tax Lien to secure the government's interest until you make your final payment.  


You must be Current on your Tax Filings

You must be current on this year's tax returns. If the IRS computers show that you haven't filed all past due tax returns, you will not be eligible for an Installment Agreement. Likewise, if you are self-employed, you must be current on your quarterly estimated tax payments for the current year. Finally, if you have employees, you must be current on payroll tax deposits and Form 941 filings to get an Installment Agreement.

Problems You May Encounter as you Request an IRS Installment Agreement



Your living expenses are not all considered necessary. The IRS may deem your expenses to be extravagant. As an example, if you have hefty credit card payments, make any charitable contributions, or send your kids to private school, you can expect the IRS to disagree. Although reasonable people would disagree on what is necessary and what is extravagant, the IRS is rather stingy here.

Information you provided on your Collection Information Statement, Form 433-A, is incomplete or untruthful. The IRS may think you are hiding property or income. As an example, if public records show your name on real estate or motor vehicles that you didn't list, or the IRS received W-2 or 1099 forms showing more income than you listed, be prepared to explain. You do not want to be caught in a lie.

You defaulted on a prior Installment Agreement. While this will not automatically disqualify you from a new Installment Agreement, it could cause your new proposal to be met by the IRS with skepticism.

ANYONE CAN AGREE TO A VERY BAD INSTALLMENT AGREEMENT

DO NOT BE THAT PERSON



YOU DO NOT HAVE TO PAY MORE THAN YOU SHOULD

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1 comment:

  1. There is more to agreeing to an Installment Agreement with the IRS than saying "OK." Make sure that your back tax debt has bee reduced to lowest possible number before saying yes to a very bad Installment Agreement.

    ReplyDelete