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Tax Payment Plan Criteria: How to Get Approved
Introduction to Tax Payment Plans
When an individual cannot pay the full balance owed to the IRS, one of the most common solutions is to get that taxpayer set up on a tax payment plan. However, payment plans are not a matter of right, and taxpayers must meet several requirements in order to get their tax payment plan approved. It is important that to be aware of these criteria, as making sure you have met all of the requirements in advance will help expedite the approval of your IRS payment plan.
Key Takeaways
- First, the IRS does not prefer that taxpayers finance their tax obligations.
- These time frames can also vary based on the size of your liability.
- Furthermore, the IRS will require that the taxpayer is up to date on all current year payments and has filed all outstanding returns.
Penalty Abatements: Reasonable Cause Factors – Part Three
Key Takeaways
- Barring anything outside of these two factors, the IRS is unlikely to consider your rationale behind an undue hardship sufficient.
- One other thing that is important to note, is that undue hardship generally constitutes an appropriate rationale where items were tied to a failure to pay.
- According to the IRS, financial detriments generally do not impact the taxpayer’s ability to file. However, I have been personally successful in releasing penalties associated for a failure to file because of an economic hardship.
Continuing my series on Tax Penalty Abatements. Click Here to read Part Two
The BLT Mindset: Where’s the Bacon? (Or Why Lawyers Should Go to B-School)
Let me tell you a quick story. When I was a second year law student, I had an idea about how to provide the perfect tax return by combining the expertise of a CPA and a lawyer to tackle the preparation process. I had my million-dollar idea! So I sat on my couch with my laptop and said, “Ok, time to make this work.” And then I came to the realization that I did not know the first thing about what it took to run a business or where to start. And then I came to another realization that, if I did not know the first thing about running a business, what made me qualified to give people legal and tax advice about how to run their business. I could not answer that, so I went to business school.
Key Takeaways
- Let me tell you a quick story. When I was a second year law student, I had an idea about how to provide the perfect tax return by combining the expertise of a CPA and a lawyer to tackle the preparation process. I had my million-dollar idea.
- I am not saying that getting an MBA is a necessity for corporate/tax lawyers. You do your job long enough and you naturally pick up the tools you need to make you a successful attorney.
- This business, law, and tax sandwich is my way of illustrating this approach to you, one that I feel is necessary to really solving problems.
Tax Levies and Property Exempt IRS Levy
Introduction to Tax Levies
The IRS can be fairly aggressive when it comes to adverse collection action. The IRS uses certain tactics to usher taxpayer compliance and to reduce the size of balances that are owed on taxpayer accounts. Tax levies are one of these collection tactics. The general rule with tax levies is that the IRS can levy all property that belongs to the taxpayer in order to satisfy the outstanding obligation. However, certain property is exempt from an IRS levy and cannot be seized by the IRS.[1]
Key Takeaways
- The IRS can be fairly aggressive when it comes to adverse collection action. The IRS uses certain tactics to usher taxpayer compliance and to reduce the size of balances that are owed on taxpayer accounts. Tax levies are one of these collection tactics.
- This list of property is codified under Internal Revenue Code (IRC) § 6334.
- 2. Personal items, personal care items, fuel, furniture, and personal effects.
Payment Plans: Partial Pay Installment Agreements
Introduction to Partial Payment Plans
The IRS expects that taxpayer will pay any back taxes that are owed in full at the time that they are due or will get on a payment plan for the amount in question. However, the IRS does not like to wait long for funds and payment plans are generally granted only in circumstances where the taxpayer can set up a payment plan to pay the balance owed, plus applicable penalties and interest within five years or prior to the expiration of the Collection Statute Expiration Date (CSED), whichever is first. However, there are some instances where this is not possible and the IRS is forced to consider the alternative. In these instances, the IRS will sometimes consider a partial payment plan for the taxpayer.
Key Takeaways
- The IRS expects that taxpayer will pay any back taxes that are owed in full at the time that they are due or will get on a payment plan for the amount in question.
- Partial payment plans and the IRS’s authority to consider them is a fairly recent development. The IRS was not previously able to consider partial payment plans and instead would just resort to adverse collection measures.
- All that considered, partial payment plans are difficult to come by based on the fact that the IRS is essentially giving up on collecting the full balance owed.
IRS Payment Plan Requests – Form 9465-FS
Introduction to IRS Payment Plans and Form 9465-FS
There are numerous options available to a taxpayer trying to resolve a balance due with the IRS.[1] One of the more prevalent options is to work out an IRS payment plan to pay down the liability in installment payments. When a taxpayer sets up a payment plan, they agree to make a specified monthly payment over a set period of time based on their ability to pay (as calculated by the IRS). In exchange for the taxpayer entering into their IRS payment plan, the IRS agrees to hold off on any adverse collection activity, including wage garnishments or bank levies, for the life of the installment agreement. Taxpayers can make a request for a IRS payment plan by filing IRS Form 9465-FS with the IRS.
Key Takeaways
- There are numerous options available to a taxpayer trying to resolve a balance due with the IRS.
- Form 9465-FS is only appropriate in certain circumstances and I have some practical advice for you in filing out the form that will maximize success in obtaining a successful IRS payment plan.
- Second, it is a good idea to have an idea of what an acceptable IRS payment plan proposal is for your own planning purposes.
IRS Interest Abatements
Introduction to IRS Interest Abatements
Any balance due that is owed to the IRS government will continue accrue interest on the amount of the outstanding tax obligation. The interest rate is generally pretty low in comparison with other types of debt,[1] but over time the amount of interest can add up and turn a small liability into a sizeable one. Unfortunately there is not too much to be done about your liability accruing interest and it is simply the cost of doing business with the IRS. However, there are certain mitigating circumstances where a taxpayer is able to do an IRS interest abatement in order to avoid the accrual of interest on some or all of the liability. When an IRS interest abatement occurs then the interest on a balance due can be abated altogether or just specific periods of time can be excluded from the interest calculation.
Key Takeaways
- Any balance due that is owed to the IRS government will continue accrue interest on the amount of the outstanding tax obligation.
- Please understand that an IRS interest abatement is a fairly difficult thing to accomplish and that its requirements are often rigid and inflexible.
- Usually, the majority of these factors are not going to apply to the majority of taxpayer situations.
IRS Currently Non-Collectible Status
Introduction to IRS Currently Non-Collectible Status
There are many ways to resolve a tax liability. You can set up a payment plan[1], attempt to settle a tax debt with an offer in compromise, or pay the balance that you owe in full. However, there are some instances where any amount of money would create an unfair economic hardship on the taxpayer. As a result, the IRS created a temporary hardship status known as IRS currently non-collectible status. This may be also referred to by the IRS or by tax practitioners as “CNC status” or 53ing an account (the code the IRS enters into the account to place it in it IRS currently non-collectible status. By placing an account in IRS currently non-collectible status, the IRS essentially halts all attempts at collection activity on an account until it feels that the taxpayer is ready to make payments again. IRS currently non-collectible status generally lasts anywhere from six months to over two years.
Key Takeaways
- In order for the IRS to deem that a taxpayer account is non-collectible, the taxpayer must demonstrate a severe and apparent economic hardship.
- In conclusion, IRS currently non-collectible status is not for everyone. However, if you do qualify, it can provide much needed temporary relief for your IRS collection issues.
Streamlined IRS Payment Plans
Introduction to Streamlined IRS Payment Plans
One of the ways that you can resolve a liability is with an IRS payment plan. The IRS generally accepts payment plans when the taxpayer does not have sufficient assets available to pay their liability in full. Payment plans are seen as a method of compromise by the Service that the taxpayer to avoid any adverse collection activity (assuming they remain true to the conditions of the payment plan) while paying down their liability to the government. However, IRS payment plans can be difficult to negotiate, in part because the IRS usually requires a complicated financial statement on the part of the taxpayer. A little known trick to taxpayers though is that you are sometimes able to set up a payment plan and it is virtually guaranteed to be accepted without having to undergo much of the financial disclosures generally required by the IRS. These are known as streamlined IRS installment agreements or streamlined IRS payment plans.
Key Takeaways
- One of the ways that you can resolve a liability is with an IRS payment plan. The IRS generally accepts payment plans when the taxpayer does not have sufficient assets available to pay their liability in full.
- There are a few basic requirements to qualify for this type of tax relief. First, as is a requirement with any of the IRS payment plans, the taxpayer must be current on all tax filings and be up to date on all estimated tax payments over the course of the year.
- In closing, if you meet the requirements for one of the streamlined IRS payment plans then they are a great way to alleviate your balance due without too much effort expended.