- A Penalty Abatement - A waiving of the penalties and interest based on reasonable cause. This will reduce your overall tax liability and your IRS Installment Agreement will be lower due to the reduction in back taxes due.
- An IRS settlement through the Offer in Compromise program. If you are eligible and qualified for a settlement of your tax liability, you can pay this drastically reduced amount in payments. Find out if you qualify for an Offer in Compromise before you get locked into an IRS Installment Agreement.
- If you are unable to pay anything toward your back tax debt that is owed to the IRS, you may be declared Currently not Collectible. Should you be declared Currently not Collectible, the IRS will leave you alone for a period of 18 to 24 months. At the end of this period of time, the IRS will look at your financial condition to see if it has improved enough so that you can make payments toward your tax liability. If you cannot pay your tax debt, you stay Currently not Collectible. The IRS, most likely, will file a Federal Tax Lien. That isn't "so bad", after all, there is no such thing as a "free lunch." The Statute of Limitations will be continuing and you may "run out the clock" on you back tax debt.
- We may be able to amend your tax returns and reduce your tax liability. Once again, this will lower your Installment Agreement.
Negotiating a Monthly Payment
If you owe more than $25,000 or can't pay the amount you owe in three years or less, your request for an Installment Agreement (IA) begins with an IRS collector's analyzing your Collection Information Statement on Form 433-A. The IRS collector uses the information on the form to determine the amount you can pay. Payment amounts are at the discretion of the IRS. If you deal with eight different collectors, you might end up with eight different Installment Agreements (IA).
- Offer to pay at least the amount of your income minus your necessary living expenses. This is the cash you have left over every month after paying for the necessities of life. Never, Never, Never promise to pay more than you can afford just to get your plan approved. Promising the IRS more than you can deliver is a serious mistake; once an Installment Agreement (IA) is approved, the IRS makes it next to impossible for you to renegotiate it. If you end up defaulting on an Installment Agreement, expect to have a levy against your wages, paycheck, etc.
- Give a first payment when you propose the agreement. Keep making monthly payments even if the IRS hasn't yet approved your Installment Agreement (IA). Making voluntary payments demonstrates your good faith and creates a track record. For example, if you pay $200 a month for three months before your Installment Agreement (IA) is approved, the collector may be inclined (it's a long shot) to believe that this is an appropriate amount.
Making Monthly Payments
- Use a direct payroll deduction. Request a payroll deduction on Form 2159,Payroll Deduction Agreement. Your employer must agree to send payments to the IRS each month using the IRS's payment slips.
- Use a direct debit. Have your bank automatically debit your checking account each month and send a payment to the IRS. As long as you keep the account open, this is the most foolproof way to make sure you don't miss a payment and risk having the Installment Agreement revoked.
Reasons Why the IRS Will Reject Your Installment Agreement:
- Your living expenses are not all considered necessary The IRS may deem your expenses "extravagant." For example, if you have hefty credit card payments, make any charitable contributions, or send your kids to private school, expect the IRS to say "no way." Although reasonable people would disagree on what is necessary and what is extravagant, the IRS is really stingy here. If you try and negotiate your expenses on your own, you will be disappointed at the results.
- 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. For 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. The IRS may be slow in many ways but what they are not is stupid. They have heard, seen and dealt with every conceivable situation. If you get caught in a lie or fabrication, you will be penalized.
- You defaulted on a prior Installment Agreement (IA). While this doesn't automatically disqualify you from a new Installment Agreement with the IRS, it will cause your new proposal to be met with skepticism. Once again, having a 3rd party who has extensive experience with the Collection Division of the IRS will be a benefit to you.
When Can the IRS Revoke an Installment Agreement
- You fail to file your tax returns or pay taxes that arose after the Installment Agreement (IA) was entered into. Although IRS computers do not continue to review your finances, they do monitor you for filing future tax returns and keeping up with your promised payments.
- You miss a payment. Under the terms of all Installment Agreements (IA), payments not made in full, and on time, will cause the your Installment Agreement to be revoked immediately. In practice, the IRS usually waits 30 to 60 days before revocation. After 60 days, you should expect a Levy against your assets. If you have been making payments by check or debit card, the IRS has your banking information which makes asset seizure very easy for them.
- Your financial condition changes significantly -- either for the better or worse.The IRS usually won't find out about this unless you tell them. If your financial situation has worsened, you really should look at an Offer in Compromise. Once again, it is the taxpayers responsibility to initiate any action for tax relief. The IRS will not be doing any "hand holding."
- 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. That would be a major "NO NO."
- I am Dave Rosa, the V. P. of Client Relations at Flat Fee Tax Service, Inc. I will be conducting your confidential consultation. It is my duty to you, as well as Flat Fee Tax Service, Inc., to provide you with an honest and straightforward evaluation of your IRS problem. Before you enter into an Installment Agreement with the IRS, find out what your options are. Find out if your tax liability can be dramatically reduced either by Penalty Abatement or through the Offer in Compromise program. Do not agree the IRS to pay more than you need to.
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