PREVIOUSLY, I discussed ways on how to request the IRS to reduce your tax liabilities, which is accomplished by means of an Offer in Compromise (OIC). In this article, I will discuss how you can pay your tax liabilities by installment if an OIC does not work for you.
As discussed before, an OIC allows you to pay your tax liabilities at a reduced or lesser amount, while an installment agreement or IA – while it does not reduce your tax liabilities – allows you to pay the taxes you owe over a period of time.
As a general rule, the IRS demands the entire amount of your tax liability, meaning that you will have to pay in lump sum. But with today’s economy, how many people can afford to pay the whole tax debt?
A tax professional can help you negotiate an IA with the IRS in several ways: over the phone, by submitting a written offer or electronically. In my case, I have successfully negotiated several IAs for my clients over the phone. Before this could be accomplished however, your financial information must be gathered and analyzed in order to come up with a reasonable monthly installment amount that is both acceptable to you and the IRS.
The taxpayer’s financial information is usually collected by making him or her fill up a Collection Information Statement (CIS). The purpose of the CIS is to determine the taxpayer’s ability to pay. From this, the tax professional and the IRS can determine the taxpayer’s monthly disposable income, which is defined as income remaining after allowable expenses are deducted from gross income. Examples of allowable expenses are home mortgages or rent, utilities, car expenses, food and clothing allowances. Deductions from the taxpayer’s income that are required by law (such as taxes and social security contributions), as well as court ordered payments like child support and alimony, are also deductible.
There are instances when only minimal financial information will be required from the taxpayer to be approved for an IA. If the taxpayer owes taxes, penalties and interests not exceeding $25,000.00, he or she will qualify for a so-called streamlined IA, wherein only minimal financial information is required. Under this program, the IRS will not make any determination whether a lien may be imposed (to be discussed later) and managerial approval of the IA is not required.
Currently, there is an IRS pilot program that is being tried where the tax liability involved is $50,000 and below. Under this pilot program, a taxpayer can make an IA offer with minimal financial information provided to the IRS. Unlike before, if the tax debt is over $25,000, extensive financial information is required and in many cases, a financial form is filled up and submitted to the IRS. But with this pilot program, the IRS requires that the monthly installment offer must be automatically deducted from a taxpayer’s bank account.
Also, the Internal Revenue Code (IRC) mandates that if the taxpayer owes $10,000 or less in taxes, the IRS must approve an application for IA. The only requirements are: the tax liabilities must be paid in 3 years, taxpayer must not have failed to file tax returns and/or pay taxes nor entered into an IA within the last 5 years, and the taxpayer must agree to comply with the terms of the agreement and tax laws for the duration of the IA. Take note that the $10,000 threshold excludes penalties and interests.
One of the advantages of an IA being offered is that the IRS will stop enforcement action like a wage garnishment or bank levy while the offer is being considered. Also, if the offer is rejected, no levy will be imposed within 30 days after rejection. If the IRS decision to reject the IA is appealed by the taxpayer, collection is likewise suspended.
Once an IA application is approved, the taxpayer will be able to pay all taxes due, including penalties and interests, over a period of time up to 60 months or 5 years. So, if you have the financial capacity to pay all the taxes you owe, but are unable to do so in one lump sum payment, an IA may be right course of action for you. Our office can help you explore your options and negotiate an affordable installment agreement that will settle your tax liabilities.
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Edgardo M. Lopez is an attorney licensed to practice in the Internal Revenue Service and the United States Tax Court. He has been an attorney for 25 years and he is a member of the American Society of Tax Problem Solvers. His IRS practice is throughout the United States and he has offices in the entire State of California (Los Angeles, San Francisco, and San Diego). His office has an A+ rating with the Better Business Bureau. Toll Free: (855) 829 4771; (888) 970 3939, E-mail: firstname.lastname@example.org, Website: TaxReleaseInc.com