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-IRS Installment Agreements /
Part Pay Installment Agreements-
Tax Resolution Solutions for some
...
Tax Problem Creators for others ...
Is it Right for You?
An
Installment Agreement may be a solution to resolve your tax
problem with the IRS. The objective being to full pay the past
tax debt and be rid of the IRS. That is a solution for
many. But, you must be careful to full pay your current period
taxes during the installment agreement period. Otherwise, you breach the
agreement, and may further have placed yourself in the position
of having paid the wrong tax debt!
On
the other hand, you may say, I can't even begin to full pay the
IRS, but I can pay something. I want to avoid having the IRS
levy my bank account and/or wages. What should I do? In such cases, another option
may be worth considering - a Part Pay Installment
Agreement.
Partial
Payment Installment Agreement
Even
where your monthly payments will not be enough to full pay the
amount owed before the 10 year statute of limitations on
collections expires, another type of installment agreement
exists. And yes, the IRS generally has 10 years to collect
the tax debt [essentially, for 10 years after they assess the tax - that is
record that you owe the tax]. Otherwise, it generally goes
away after 10 years. This Part Pay Installment Agreement option
exists due to an earlier change in the law. Also, in appropriate
circumstances, a Part Pay Installment Agreement may be a better
tax resolution tool than attempting an Offer in Compromise.
In
the case of a Partial
Payment Installment Agreement. [The
Internal Revenue Manual Resource Material is here] you
are making payments which will not full pay the tax debt;
and when the Collections Statute of limitations is up on a
particular old tax debt, the tax debt goes away. However,
a full financial statement is required for Part Pay Installment
Agreements. Also, the IRS historically will "create" a
greater ability to pay on the back tax debt than really exists
when they review your cash flow information. For you, this
is of concern, because if you pay too much on old years for
which the statute of limitations is about to run out, while you
are not paying sufficient current taxes, you have paid the wrong
tax debt!
Why? Because you paid down on a debt that would
otherwise have gone away, while you created a new tax debt which
will live another 10 years. You basically took your hard
earned money and placed it in the paper shredder. Moreover, at the same time,
the IRS may be creating an economic hardship on you and your
family because necessary living expenses are being denied. The
Taxpayer Advocate has published reports on this. Experienced tax
counsel is recommended.
The
above situation exists because the IRS is failing to Properly Evaluate
Taxpayers’ Living Expenses and Is Placing Taxpayers in
Installment Agreements they cannot afford.
Also,
in April,
2017, the IRS will start using Private Debt Collection
Companies. The prior use of such programs has been very
negative. As to the current “program”,
the Taxpayer Advocate has also reported that this program is
being implemented in a manner arguably inconsistent with the law
and that will unnecessarily burden taxpayers, especially those
experiencing economic hardship. This may be another indicator
for you to seek professional guidance and planning to get your
tax problems behind you.
Call
for your TaxSOS free consultation today.
The
overall published default rates on I/As mask the economic
hardship for taxpayers who do not have enough income to support
payment of an IRS proposed installment agreement.
The
default rate on Partial Pay Installment Agreements is close to
28 percent, while the rate of default on Installment Agreements
worked by IRS field representatives is 26%, and the rate for
Automated Collection Services is a little over 20%. [See
Taxpayer Advocate 2016 Annual Report to Congress - here].
The
Taxpayer Advocate Report advises that nearly 300,000 taxpayers
“who should have qualified for currently not collectible (CNC)
status had entered into installment agreements in calendar year
2014 despite their income being below the IRS allowable living
expense (ALE) standards”.
The
point is that that the IRS is not conducting proper financial
analysis. This results in taxpayers entering into Installment
Agreements they cannot afford while the taxpayer suffers from
not being able to pay necessary living expenses.
What
is the cost to the taxpayer of setting up an installment
agreement which is merely going to default?
The default consequences to the taxpayer include:
- Not being able to obtain another
guaranteed IA (there are specific requirements to qualify) in
the subsequent five year period;
- Not being able to pay for
necessary living expenses;
- An additional user fee for
the taxpayer if the taxpayer requests a reinstatement of a
defaulted Installment Agreement;
-
Taxpayers may improperly lower current period withholding
in order to make payments on the older tax debt, and end up
owing more taxes and penalties, resulting in default of the
Installment Agreement; and
-
the mounting pressure cooker effect that the ever
“looming IRS cloud” isn’t going away, and that the
taxpayer has merely shifted an “old” IRS debt for a
“new” one, and has given the IRS an additional 10
years to collect on the “new” debt. Essentially, the
taxpayer has paid the “wrong” taxes due to pressure by the
IRS.
Many Taxpayers agree to an
installment agreement they can’t afford because of outright
fear of the IRS. Historically, I have had taxpayers concerned
about suicide, and situations where children were under suicide
watch because of IRS tactics, intimidation and abuse. The
Taxpayer Advocate Report advises that “Nearly 300,000 taxpayer
accounts that should have qualified for currently not
collectible (CNC) status had entered into installment agreements
in calendar year 2014 despite their income being below the IRS
[Allowable Living Expenses].” By
definition taxpayers who cannot meet their necessary living
expenses are experiencing economic hardship. Release of levy
should be made, but the IRS will put these Taxpayers into an
installment agreement even though such payments cause economic
hardship.
The goal of a payment plan
should be a plan that is “realistic for the taxpayer given the
taxpayer’s individual circumstances”. The
IRS many times ignores this requirement.
If an Installment Agreement is not the best solution,
then other alternatives should be explored, including an Offer
in Compromise, Currently Not Collectible, etc…
The plan should provide for strategies to ensure that
taxpayers come into compliance and remain compliant.
The Taxpayer Advocate report
concludes, in part, by stating:
“Taxpayers who enter into IAs they cannot afford risk
defaulting on the agreement and being subject to further
collection efforts. Alternatively, they may attempt to pay the
IRS at the expense of meeting their basic living needs. Further
compounding this problem are ALEs where the analysis leaves
major Household expenses up to the individual discretion of an
IRS employee and ALEs that are based on standard expenses that
do not reflect the reality of today’s society. Setting
taxpayers up to fail at compliance does not comport with
taxpayers’ rights, specifically the right to finality and the
right to a fair and just tax system. …”
[See
Taxpayer Advocate 2016 Annual Report to Congress - here]
The
above are among the many reasons why you should have a tax
professional represent you before the IRS.
IRS
Levy, IRS Liens, IRS Garnishments; State of California Installment
Agreements, Levy, Liens and Garnishments - Solutions
Call
for your TaxSOS free consultation today.
The above limited information is
intended for informational purposes only. If legal advice
or other expert assistance is required, the services of a
competent professional should be sought, and this general
information should not be relied upon without such professional
assistance.
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