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Automatic IRS Installment Agreement

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An automatic IRS installment agreement is an agreement by which taxpayers can make monthly payments utilizing one of three online payment options as well as self-certifying through an online payment agreement application, which allows taxpayers to work out their payments online rather than face-to-face with a representative. The IRS offers an online payment agreement tool that requires information specific to the taxpayer such as balance due notice from the IRS, Social Security or Taxpayer Identification Number, and a personal identification number generated online.

Key Takeaways

  • automatic IRS installment agreement
  • online payment agreement
  • Payroll Deduction Agreement
  • Form 2159, Payroll Deduction Agreement

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What is an IRS Installment Agreement?

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Taxpayers that are responsible for an outstanding tax liability with the government are responsible for ensuring they meet the obligation. Overdue tax balances are subject to interest and monthly late payment penalties. The IRS advises taxpayers to pay their balances in full to minimize additional charges. “Penalties are also assessed for failure to file a tax return so you should file immediately even if you cannot pay your balance in full” (IRS.gov, “Topic 202 – Tax Payment Options,” 8/19/2013).

Key Takeaways

  • Taxpayers that are responsible for an outstanding tax liability with the government are responsible for ensuring they meet the obligation. Overdue tax balances are subject to interest and monthly late payment penalties.
  • The IRS offers various options for taxpayers making payments.
  • The IRS charges an installment agreement user fee of $105 when you enter into a standard installment agreement or a payroll deduction installment agreement (“Topic 202”).

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Releasing a Levy While in Currently Not Collectible Status

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A levy can be released while a taxpayer is in currently not collectible status. Section 6343(a)(1) of the Internal Revenue Code requires a levy to be released if the Service determines that the circumstances are appropriate based upon policy. The Internal Revenue Service will require “supporting documentation as is reasonably necessary to determine whether a condition requiring release exists” (IRS.gov, “Part 5. Collecting Process, Chapter 11. Notice of Levy, Section 2. Serving Levies, Releasing Levies and Returning Property, 8/18/2013). The IRS allows the release of a notice of levy when it is clear that circumstances will prevent the taxpayer from making payments and the IRS from receiving payments.

Key Takeaways

  • A levy can be released while a taxpayer is in currently not collectible status. Section 6343(a)(1) of the Internal Revenue Code requires a levy to be released if the Service determines that the circumstances are appropriate based upon policy.
  • An example of this might deal with an employer receiving a notice of release of levy.
  • There are additional legal bases for release of levy. “Section 362(a) of the Bankruptcy Code (Title 11) prohibits levy on the property of a taxpayer in bankruptcy” (“Section 2. Serving Levies, Releasing levies and Returning Property”).

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IRS Currently Not Collectible Status – Part Three

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How Do I Obtain Currently Not Collectible Status?

To obtain currently not collectible status, you will need to consider addressing your concerns with a tax attorney who is an expert in resolving IRS back-tax liability and who is competent enough to review your financial situation “for free to determine whether pursuing Currently Not Collectible status is worthwhile; if hired, he or she will also take care of the rest of this process” (Hein).

Key Takeaways

  • To obtain currently not collectible status, you may also contact the IRS directly and apply using Form 433-F, Collection Information Statement.
  • To request currently not collectible status, you must demonstrate an inability to pay the tax debt. You must show specifically that you cannot make monthly payments.
  • If you are married, the IRS requires you to submit the information above for both parties.

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IRS Currently Not Collectible Status – Part Two

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Pros and Cons of IRS Currently Not Collectible Status

The pros and cons of receiving a currently not collectible status are specific to the taxpayer’s ability to pay taxes owed. If the taxpayer is unable to pay, then he or she will receive this consideration. If the taxpayer cannot pay the tax owed, and the IRS fails to collect the debt in ten years, then the taxpayer will not have to pay the debt. However, there is a ten-year statute of limitations that the IRS can exercise in the event that the taxpayer is able to begin a payment structure.

Key Takeaways

  • The pros and cons of receiving a currently not collectible status are specific to the taxpayer’s ability to pay taxes owed. If the taxpayer is unable to pay, then he or she will receive this consideration.
  • It is important to note that currently not collectible status should not be considered as a permanent form of tax debt resolution.
  • The IRS will periodically monitor your financial situation. The IRS will review reports from third parties such as employers and banks.

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IRS Currently Not Collectible

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IRS Currently Not Collectible (CNC)[1] is defined as the decision the IRS takes in concluding that a taxpayer has no ability to pay their annual federal income taxes. This type of status protects taxpayers from the “aggressive tactics of the IRS Collection Division” (Avvo.com, “Currently Not Collectible Status,” 8/18/2013). The IRS currently not collectible status is useful for taxpayers wishing to negotiate regarding their responsibility to pay off owed taxes. “Negotiating Currently Not Collectible status indicates to the IRS that you are serious about your responsibility to pay off taxes you may owe but do not have the funds to pay at this time” (Hein).

Key Takeaways

  • The IRS can declare a taxpayer in“IRS currently not collectible” after receiving evidence of the taxpayer’s inability to pay. This type of evidence is typically obtained from the taxpayer on IRS Form 433-F, Collection Information Statement.
  • Once a taxpayer is declared IRS currently not collectible, the IRS stops all collection activities, which include issuing levy and garnishment orders. The IRS sends an annual statement to the taxpayer outlining the outstanding tax.
  • While the taxpayer is in not collectible status, the ten-year statute of limitations still applies within this context. However, if after 10 years the IRS still cannot the collect the tax, then the tax debt will expire.

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Is Bankruptcy an Option?

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IRS audit defense guide — Brotman Law

Filing for bankruptcy is an indication to your creditors that you are unable to repay your debts. On the other hand, bankruptcy provides you with protection from your creditors. It provides you with an opportunity to develop an effective debt repayment and management plan.

Key Takeaways

  • Filing for bankruptcy is an indication to your creditors that you are unable to repay your debts. On the other hand, bankruptcy provides you with protection from your creditors.
  • However, keep in mind that although it is a viable option, bankruptcy is still a drastic solution that will have negative effects upon your finances and your credit history. A bankruptcy stays on your credit report for 10 years.
  • Understand that declaring bankruptcy may provide you the fresh start you need, but also understand the consequences of choosing the option and how it will affect your life and your finances for the next 10 years. Keep a good perspective.

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How to Pay Your Taxes

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Shutterstock 167328332

How to Pay Your Taxes in Full

Unlike Chapter 7 bankruptcy, chapter 13 bankruptcy requires the taxpayer to pay all debts in full over a three-year to five-year period. With chapter 7 bankruptcy, most debts are cancelled and you must surrender some property to the bankruptcy trustee to pay creditors. However, with chapter 13, you end up paying most if not all of your debts over time. That’s why chapter 13 bankruptcy is considered the reorganization bankruptcy.

Key Takeaways

  • Unlike Chapter 7 bankruptcy, chapter 13 bankruptcy requires the taxpayer to pay all debts in full over a three-year to five-year period.
  • In a chapter 13 bankruptcy, filers must develop a repayment plan, the length of which is determined by how much the taxpayer earns and how much he or she owes. “Your Chapter 13 plan must pay certain debts in full.
  • Requesting an extension to pay your taxes involves multiple options. For one, taxpayers can utilize the option of requesting an automatic extension to file their individual income tax return.

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The Collection Statute Expiration Date

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The Collection Statute Expiration Date (CSED) falls under Section 19[1] of the Internal Revenue Manual (IRM). The CSED refers to the idea that every tax assessment has a statute of limitations. The rules and procedures for the CSED are governed by statute, namely section 6502(a) of the Restructuring and Reform Act of 1998 (RRA 98).

Key Takeaways

  • According to the IRM, each tax assessment has a collection statute expiration date, or CSED (IRS.gov, “Part 5. Collecting Process, Chapter 1. Field Collecting Procedures, Section 19. Collection Statute Expiration,” 8/17/2013).
  • If you file for bankruptcy, because of the automatic stay imposed by the proceedings, the CSED is generally suspended.
  • The CSED is extended throughout the duration of the bankruptcy proceedings plus six months. It is extended on non-dischargeable tax liabilities, from the date of filing for bankruptcy to the date the bankruptcy is either discharged or dismissed.

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Psychological Effect of IRS Collections

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Achieving financial stability should be a lifelong goal. Developing financial plans and meeting long-term objectives is a lengthy process that requires patience, discipline, and endurance. What happens when your plans are disturbed because of past and present financial issues that threaten to destroy your future? Bankruptcy is one of those financial problems that take into consideration your past, your present, and your future.

Key Takeaways

  • Achieving financial stability should be a lifelong goal. Developing financial plans and meeting long-term objectives is a lengthy process that requires patience, discipline, and endurance.
  • What you have done with money up to this point will dictate, in essence, how money will be distributed from the income you bring in. Now you must develop a debt repayment plan and lose a significant percentage of your income to repaying old debts.
  • A money crisis is taxing on the mental state. This is especially significant for filers of bankruptcy.

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