TAX RESOLUTION

Most individuals try to arrange matters so that they won't have to pay any additional taxes when they file their income tax returns. However, things don't always work out as planned and it's possible to find not only that there is tax to pay at filing time, but also that there is insufficient cash to pay. You do not have to pay the tax liability in one lump sum. The IRS has made it possible for taxpayers to pay delinquent taxes in monthly installments. Of course, fees and interest must be paid but, most often, the alternative of not taking a proactive approach is far less desirable.

Applications for installment agreements are easy to make and are generally granted. They are guaranteed to be granted for individuals (but not businesses) if the tax liability is $10,000 or less, the taxpayer has been compliant for the past five tax years, and the taxpayer agrees to pay the entire liability within three years. Drawbacks to setting up an installment agreement include the continued accrual of interest and penalties on the tax owed. Also, the IRS may proceed to issue a notice of federal tax lien or Institute levy action against a taxpayer who defaults on the agreement.

To apply for an installment agreement, complete IRS Form 9465, Installment Agreement Request and attach it to your tax return. You may file electronically. But in any event, you have to supply information such as the name of your bank and the amount and date of the proposed monthly payment. If the IRS approves the request, there will be a user fee. Some taxpayers may qualify for a reduced fee.

Streamlined Installment Agreements. There are four types of installment agreements, but for individuals and businesses, one of the simplest and most hassle-free is the streamlined installment agreement. In early 2012, the IRS announced enhancements to streamlined installment agreements. Under the updated streamlined process, no financial analysis of a taxpayer’s ability to pay is required by the IRS. The IRS also raised the monetary threshold for streamlined installment agreements from $25,000 to $50,000 and also increased the maximum term for a streamlined installment agreement from 60 months to 72 months.

The IRS is authorized, in most situations, to enter into a partial payment agreement with a delinquent taxpayer. Under this rule, the IRS is no longer restricted to seeking a payment agreement that will "satisfy the liability." Instead, the goal of the agreement is to have the taxpayer "make payments" in "full or partial" satisfaction of the liability.

When you enter into an installment agreement you must agree to make the monthly payments on time. You also must agree to meet all future tax liabilities. As a result you should arrange for your withholding from salary or wages and payments of estimated tax to be sufficient to ensure that taxes will be paid in full when a future year return is timely filed.

The IRS can terminate an agreement if you don't timely pay an installment (and for other reasons). But it will give you 30 days to respond to its intention to terminate and an agreement that is terminated can be reinstated. There is a fee for restructuring or reinstating an installment agreement.

It's important to be aware that even if an installment payment request is granted by the IRS, interest and a reduced late payment penalty applies to any balance due. Therefore, to minimize interest and penalty charges, you should timely file the return and pay as much tax as possible with the return before making an installment payment request.

Once you take into account these interest and penalty charges, it may be less costly to borrow funds from an alternative source and use them to pay your tax rather than asking the IRS to allow installment payments. Please contact us if you would like more information or if we can help you figure out an installment payment arrangement that is best for you.