Tax Debt Solutions Blog

IRS Penalties: Defaulting on your Installment Agreement

Don't break your deal with the IRS!

When you set up an installment agreement, you are making a deal with the IRS by which you are telling them you will be making monthly payments towards paying off your tax debt within a certain time period. However, if you do not fulfill your agreement, you will end up with an IA (Installment Agreement) default.

When the IA default occurs, you will receive a notice of default from the IRS (entitled as a ‘Notice of Levy’). Once you have received this, you are given exactly 30 days to make an appeal against it so you can negotiate with the IRS about an installment agreement. Otherwise, the IA default will be enforced and your installment agreement with the IRS will end after the 30-day period and they will try to collect what you owe!

So long as you file the appeal within the 30-day period, your installment agreement will be valid until your case has been heard and a decision has been made, in accordance with the law.

If you win your case, your negotiations with the IRS will protect your assets, your income, and your bank account from being levied while they are taking place. During this time, you should ensure you give the IRS up-to-date information about your financial situation, which hopefully will stop the IA default from being enforced.

If you have no ability to pay the IRS back and your appeal is rejected, you should consider other options, such as an offer in compromise, filing for uncollectible status or declaring yourself bankrupt. These can be effective alternatives however; the best option depends entirely on your personal situation.

Offer in Compromise vs. Installment Agreement

Can an IRS Installment Plan or Offer in Compromise Resolve Back Taxes?

A taxpayer’s real fear of not having the money to settle back-taxes is thinking that they cannot do anything about their debt.  Most people are completely unaware that there are IRS sanctioned payment options available.  This means there is a high chance of them qualifying for an Internal Revenue Service tax settlement program.

As a taxpayer, you should always question which Internal Revenue Service tax settlement is best.  Is it the installment plan or the Offer in Compromise?  However, choosing the most suitable option of the two is not always clear cut because every taxpayer has a unique set of circumstances as to why there are back taxes.  Both programs work well depending on the particular situation in question.

There are many reasons why an individual may a large amount in back taxes.  The reasons could be personal hardship, legal judgments, a failed business or unexpected medical costs.  If you can’t pay your tax bill, the Internal Revenue Service makes it possible for you to make them an offer.  This is called an Offer in Compromise.  It is likely you will get a large discount if you apply for this program and so it is suitable for those who owe a large amount.  An added advantage is you get to pay the tax bill once and for all.  You make your offer at a meeting with the Internal Revenue Service.

However, if you do not have the cash means to pay your back taxes in one payment then you should consider an Installment Agreement (or Internal Revenue Service Payment Plan).  You do need to have the money to pay off your debt over a specified period of time.  This is exactly the same as paying off any expensive item by small amounts each month.  Once you agree to a program you have the responsibility of making your payments on time every month.

Tax Relief: You Need To Know This About Installment Agreements

Installment Payment Plan

Debt under $25,000 easily qualifies for a payment plan, but debt over $25,000 must be negotiated.  A payment plan has the downfall of penalties and interest accumulation during payment which could take years to pay off.

IR Code 6502 allows ten years for the IRS to collect tax money.  To get an IA, the IRS will grant you the extension if you sign Form 900.  Delay the process by first speaking to a tax advisor.  The IRS may not remember to give you the form; in those cases, make sure you request a Form 900. If you don’t sign the form, you don’t get an installment agreement.

Negotiating Monthly Payments

If you can’t pay your tax in a maximum of three years or you owe in excess of $25,000 ask for a monthly payment plan and complete Form 433-A or –B.  Each revenue officer will come to a different conclusion on how much you should pay. 

Strategies to get a payment plan:

• Tell them what payments you can afford when handing in Form 433- A or -B.
• Commit to paying less for income essential living costs only, i.e. amount IRS states you can afford after essentials.  You offer to pay lowest amount as it’s hard to revise once you sign installment plan.
• If you have $0 or a minus amount contemplate an Offer in Compromise, collection suspension, or bankruptcy.
• Make an initial payment when you suggest an agreement.  Continue the payments regardless if the IRS permitted your IA.  Paying a set amount, in a timely matter, for three months may convince the officer that the payment plan and amount is right for you.  If you don’t have the means to start immediate payments, a check that is postdated may be accepted.

Tax bills higher than $25,000 must be approved by a manager, not a tax officer.  If an IA is approved it could take months to get it in writing.

If You Can’t Fulfill your Installment Payment

Being unable to fulfill a monthly payment requires an exceptional reason such as disability or loss of employment.  Call 800-829-1040 for help and also contact the relevant tax officer.  If the IRS doesn’t agree, they can start procedures to seize your property; contact the Taxpayer Advocate Service.

An appeal against a revocation can be restarted but the IRS is usually not compliant if the amount is more than $10,000.  You must supply new documentation showing your changed circumstances, affecting income and living costs. During the new process for an IA, the IRS may take wages and accounts.

Tax Debt Relief Help: Protecting You and Your Assets

Safeguarding Yourself after Disclosing Finances to the IRS

 

After your interview, the IRS will know where you live, work, bank etc.  They can easily confiscate assets and wages so be sure to safeguard yourself. You don’t have to let them know if you change employers, banks or sell assets the day after verbal or oral disclosure but, you must give information that is presently accurate.  Switching banks is a lawful short term option.  Leave a small amount in an account and move the surplus to a different bank.

 

Only interest bearing accounts are conveyed to the IRS at the end of the year.  Open an account in a different location or state from where you reside.  Only pay the IRS with money orders or through your old account.  Each payment’s account is recorded by the IRS so don’t supply you new account number(s).  However, if you are asked to complete Forms 433-A or –B, you must disclose new accounts.

 

Collector’s Next Move

 

After assessing forms 433-A and –B the IRS could:

 

• Demand payment immediately if there is proof that you can pay
• Request that you get a loan from a bank, finance company, or relative company or relative
• Request you sell assets in order to pay the IRS
• Recommend an Offer in Compromise
• Suggest a payment plan
• Advise you of bankruptcy alternatives
• Start imposed collection i.e. levy accounts, other assets and wages
• Describe your case as presently uncollectible

 

Revenue Officers check information supplied by you.  If you transfer your assets or ask family members to hold your assets they will act severely.  Fake transfers are unlawful and the IRS can seize them.

Tax Relief: Installment Agreement- Getting Declined

When the IRS Declines an Installment Agreement

There are three reasons for the IRS to turn down an Installment Agreement (IA):

• Not all living costs are deemed essential i.e., private schooling fees, high credit card purchases, charitable donations.

• Information on Forms 433-A and -B are inaccurate or deceptive e.g., public records prove you own assets that you didn't reveal or your income is higher than disclosed.

• You failed to complete a previous Installment Agreement causing the IRS to regard you as unreliable.

If an IA is turned down, continue your request with the tax officer/manager, RS Appeals Office, and tax advocate.

Revoking an Installment Agreement

Once an IA is approved, you and the IRS are bound to it. However, there are exceptions to revoking your payment plan:

• You don't file tax returns or settle taxes subsequent to the IA; the IRS monitors your returns and payments.

• Revocation is caused by non-payment or late payment; the IRS gives thirty to sixty days before sending a warning regarding revocation.

• There's a noticeable (positive or negative) change in your finances. If you keep silent they may not see it but, if the IRS notices, you must complete a new Form 433-A or -B.

• If the IRS learns you didn't fully disclose all assets and/or additional income(s) during your IA negotiations.

A Form 523 notifies you of the IRS' intention to revoke your IA. You can appeal it by using Form 9423.

Tax Relief: Contacting the Audit Collection Services (ACS)

Tax debt under $25,000 could qualify for a payment plan of up to sixty months. However, your request for a payment plan can be denied due to unfiled returns. Debt of more than $25,000 must be worked out with the ACS.

Have a strategy prior to contacting a collector:

• In an event that a collector contacts you first, make an excuse not to speak with them- say you will get back to them. If you don't have your facts and figures straight, don't reply to any questions other than your name.

• The collector may grill you regarding your home equity, other real estate, bank balance(s), and if you qualify for credit. The collector wants you to pay your tax debt in full and may request that you take a loan. If he/she thinks you can pay your debt in full, the payment will be expected within thirty days. If you have proved that you cannot make the full payment, you could get a monthly payment plan also called an installment agreement (IA), however, you may have to provide pay slips, rent receipts, etc.

• The collector wants all tax money paid quickly. Your objective is to present an organized list of your finances for more time to pay off your debt. Have your income, living expenses, assets and debt data ready. The information is comparable to IRS Form 433-A & -B, Collection Information Statement for Businesses, Self-Employed Individuals and Wage Earners documents.

• Be prepared to wait when calling the collector. Write down his/her name and ID number. Take notes; you could speak to a different collectors each time you call. Some collectors may be more sympathetic than others so emphasize why it's difficult to meet your expenses e.g. low income.

• Complete a Collection Information Statement. If you made a verbal agreement, follow through. Pay on time even if the IRS monthly billing is late.

Tax Relief: Negotiating an Installment Agreement with the IRS

Negotiating an Installment Agreement (IA) When You Also Owe State Taxes

It's common to owe taxes to your state and the IRS at the same time; however, you must discuss payment plans with both simultaneously. This is to prevent you from not having enough money to split between the two.

Offer in Compromise - Paying Taxes for Pennies on the Dollar

A lawful reason is not grounds to have a tax bill lessened; it is up to Uncle Sam if you qualify. In most cases the IRS is obliged to give most requests for OIC (Offer in Compromise) balanced consideration. If turned down you can go to the IRS Appeals Court.

It is possible for the IRS and tax payer to work out a deal. Find out at the onset if you qualify as it could save you time and money.

An offer to the IRS takes a long time and must be properly processed with all the required documentation and items such as car registrations, pay slips and accounts.

Are You Eligible for OIC Consideration?

You must do more than request a deal with the IRS: you must not be bankrupt, must complete Form 656 and prove one of the following:

• Doubt as to Collectibility- It's not a sure thing the IRS can collect your tax money owed.

• Doubt as to Liability- It's not a sure thing your tax bill is correct (this is unusual).

• If you have enough assets to settle but extraordinary conditions initiating ‘economic hardship' or ‘unfairness' or ‘inequality'.

 

Tax Relief: It’s No Party When an IRS Revenue Officer Calls

No taxpayer wants an unexpected visit from the IRS.  Collection employees sent by the IRS are known to be highly experienced and worldly enough to take on cases that involve big money.  These are cases that are specifically recognized as being noteworthy to the IRS.  Special attention is allocated to repeat offenders, non-filers, businesses and employment tax liabilities.  The purpose of the Revenue Officer is restricted to a local area not far from your business or home.  These Officers are ‘field agents’ and have to leave the office and go into the environment of those chosen as special cases.

 

There is no doubt that if you have been handed over to a Revenue Officer of the IRS you will be paid a visit and it will be a surprise visit to either your business or home.  It has been noted that most surprise visits take place on prior to holiday weekends and also on Fridays.  The IRS Officer will leave behind a calling card in the case of you being away.  The calling card will ask you to get in touch with the IRS by a specific date.  In the event you do not act in accordance with the request, the Revenue Officer can summon you to an office of the IRS. 

 

A Revenue Officer will proceed to get your receivables, wages, bank accounts and retirement accounts should you not willingly work with the IRS.  In addition, a Revenue Officer has the power to take control of business apparatus and vehicles.  However, this is a final alternative if the case in question is critical.  It is important to bear in mind the objective of a Revenue Officer is to make a decision in order to shut a file.  In order to do this it may take an installment agreement, offer in compromise or your case being declared uncontrollable.  Your particular finances determine the outcome and it helps to cooperate as much as you can.

Tax Relief: Will Uncle Sam Understand If You Break Your Promise?

If you are a tax payer who made every attempt to make your tax installment agreement payments but failed, it will come as a relief to know Uncle Sam is obligated to follow a specific procedure.  The IRS may not act ruthlessly against you by terminating the installment agreement in order to collect money.  There are many tax payers who made the repayment of back taxes a priority and then fell back on the current year’s tax return.

 

Uncle Sam is aware many tax payers try their best to keep up in spite of the weak economy.  If you fell behind on your tax installment agreement (also called a payment plan), the IRS must provide you with a Notice of Default prior to terminating an installment agreement.  Such a notice is called ‘Notice of Intent to Levy’ and it gives you thirty days to officially lodge an appeal.  This appeal is for you to renegotiate a new installment agreement based on your changed circumstances.  It is essential that every tax payer is aware that a ‘Notice of Intent to Levy’ gives you specific rights.

 

The Internal Revenue Code 6159 (b) (5) and Internal Revenue Manual (IRM 5.14.11.9) gives you legal protection against the IRS collecting money or implementing any default action until after your appeal is heard and concluded.  However, you only receive this protection if you appeal on time i.e. within the thirty days notice period.

 

While you renegotiate a new IRS installment agreement your assets, wages and bank accounts are given protection against the action of collection.  Any new information regarding your finances can be specified without any danger of levy to resolve the failure to pay.  You have the advantage of an IRS Appeals Officer handling your appeal rather than a number of officials within the IRS Automated Collection Service.

 

If repayment is impossible, you may have to think about bankruptcy, being put into IRS Not-Collectible Status or an Offer in Compromise.  The procedure for installment agreements below $25,000 is made easy.  Uncle Sam sets certain laws in motion for your protection if you follow the rules.

Tax Relief: Uncle Sam Has No Favorites

Ordinary people have a hard time managing their taxes and so do celebrities.  Of course, the difference between ordinary Americans and celebrities is the amount of cash involved.  It’s not only the average American who makes use of installment agreements and payment plans to catch up on unpaid taxes.  The rich and famous are also joining in.  An example would be Ms Zsa Zsa Gabor.  Uncle Sam made it clear even a former pinup actress could not get away with unpaid taxes in excess of $118,000.  This shortfall came from 2001 and 2002.  According to Ms Gabor’s advisers, the actress $7 million due to the Ponzi Scheme of Bernie Madoff and the tax shortfall is a spin-off.  Ms Gabor and spouse are negotiating a payment plan with the IRS.

 

Political experts also use the paying off method to catch on their taxes.  The Detroit News stated Ed Rollins had a lien filed against him by the IRS:  $47,518 in September; $13,567 in May and $977,458 in March.  He also had tax warrants filed against him by Oklahoma and New York.  According to Ed Rollins he has negotiated an IRS payment plan, has already provided a ‘substantial portion’ towards his unpaid taxes and has settled his tax bill for New York.  However, he will challenge the tax warrant from Oklahoma.  His reason for the challenge will be founded on residency rights.  State tax departments are becoming more aggressive about getting their tax share whether you live inside a border or not.

 

Whether you are rich and famous or a regular citizen you can and should make use of a payment plan if your tax bill is more than you can afford.  You don’t have to take action only when collectors file liens against you.  Uncle Sam will ask for a once of fee of $105 but if you pay by direct debit it will be lowered.  Your unpaid taxes will accrue interest.  The paying off of taxes is known as payment options/plans, installment agreements or payment agreements.