If you have accrued a tax liability and think that an IRS collection representative will cheerfully explain how to best go about resolving your tax debt, think again. The IRS does a terrible job of advising taxpayers about their options for resolving unpaid taxes. The IRS Collections Department’s function is to collect as much of the debt as possible, as quickly as possible. Consequently, they frequently will not tell you if there are other options, and often pressure you to fully pay your liability immediately. Even if you can stretch, and afford to pay, doing so may not always be the best idea, particularly if there is another, less devastating option available–which there often is.
For both business and personal liabilities, there are Installment Agreements available that do not require the involvement of a Revenue Officer (a human tax collector in your geographic area) or the onerous financial documentation that the IRS often requests. These options may make sense if you are not in a position to fully pay your debt immediately or if there are other obligations that would cause you a hardship if you paid immediately.
Individual Tax Liabilities
Individuals who owe less than $50,000 to the IRS very often qualify for a “Streamlined Installment Agreement.” This type of agreement does not require financial disclosure, or extensive negotiations, although the IRS won’t always tell you that. The Streamlined Installment Agreement will allow you to pay the tax liability over a maximum of 72 months, with equal monthly installments. Taxpayers who owe less than $25,000 can pay online, by check, by direct debit, or by payroll deduction. If you owe between $25,001 and $50,000, you are required to pay by direct debit or payroll deduction. In any Streamlined Agreement where the tax debt is $50,000 or less, the IRS is not required to file a tax lien.
Even if an individual owes more than $50,000, there may still be an option for a relatively easy Installment Agreement. In 2018, the IRS experimented with an “Expanded Streamlined Installment Agreement.” Expanded Streamlined is available to individual taxpayers who owe between $50,001 and $100,000. It allows up to 84 months for repayment of the debt, and is technically not still available. However, Automated Collections still sometimes grant Expanded Streamlined Installment Agreements.
Revenue Officers, on the other hand, generally will not approve an Expanded Streamlined Installment Agreement so, if your case has been assigned to a Revenue Officer, there likely will be no “easy” Installment Agreement option.
The payments on an Expanded Streamlined Installment Agreement must be made by direct debit or payroll deduction, and a Notice of Federal Tax Lien will be filed. Expanded Streamlined is somewhat tricky to negotiate, so you may want to hire a tax resolution professional to ensure that the IRS accepts an Expanded Streamlined Installment Agreement.
If you owe individual taxes of more than $100,000, or are unable to pay within the time frame allotted for the Streamlined and Expanded Streamlined Installment Agreements, you will need to prove your “ability to pay” to the IRS. This requires extensive financial disclosure and verification. It also brings the “National and Local Standards for Allowable Expenses” into play, which can cause big problems for many taxpayers.
In those situations, your best bet is to have a very good idea of what you can afford to pay per month, prepare a financial statement on Form 433-F ahead of time, and have solid explanations for why you can’t reduce your current living expenses. I highly recommend that taxpayers in this situation hire a tax resolution professional to assist in the negotiations. We know some methods and some rules that will help you get the IRS to approve the lowest possible monthly payment.
Business Tax Liabilties
Businesses with tax debts also have an option for an “easy” Installment Agreement. A business that owes less than $25,000 in employment tax is eligible for an In-Business Trust Fund Express Installment Agreement, if it can agree to pay the debt within 24 months via direct debit. The Express Agreement does not require that the IRS file a lien. These agreements must be reviewed and approved by an IRS Collection Manager, so there is a bit more potential for a problem than with the Streamlined and Expanded Streamlined Installment Agreements that are available to individuals. Unfortunately, once a business owes more than $25,000, there are no simple Installment Agreements available. Rather, a full-blown financial disclosure will be required prior to the approval of an Installment Agreement.
Even if you do not immediately qualify for one of the above Installment Agreements, you can make payments to reduce the debt until you are eligible. The IRS will usually agree to allow time for a down payment, but not always. The IRS is also required to ensure that the monthly payments are sufficient to resolve the debt within the ten-year Statute of Limitations on Collections. Even if you appear to qualify for one of these Installment Agreements, the IRS may not be able to grant one if the Statute of Limitations expires before 72, 84, or 24 months, respectively. If you are on one of these borderlines, an experienced representative can be an enormous help in negotiating an agreement that works for you.
It is also important to understand that there are limitations to eligibility that have to do with aspects of the case beyond the balance due and the Statute of Limitations. To be eligible for an IRS Installment Agreement, you must have filed all tax returns that are due, and you must be in compliance with your current tax deposit requirements. These agreements are subject to the same terms as more traditional Installment Agreements as well in that any new liability or missed payment can cause a default and send you back to square-one.
Although the Streamlined Installment Agreements, Expanded Streamlined Installment Agreements, and In-Business Trust Fund Express Installment agreements discussed in this post may seem fairly easy to negotiate, there are always potential hidden problems. I have had problems establishing each of these types of agreement, and I am a professional who has represented thousands of taxpayers at this point in my career. For the most part, I have been able to push past those problems and achieve the results my clients desired. If you are unsure of how to go about the negotiation, even for a small tax liability, it always helps to have a seasoned tax resolution professional in your corner.
Keep in mind that you might qualify for a tax resolution program that is better than any of those discussed above. An Offer in Compromise (tax settlement for less than the full amount owed) is one example. Before entering into any agreement to resolve a large tax liability with the IRS, talk to a tax resolution professional so that you have a clear understanding of your options. Remember, the IRS may not tell you about all of your options, and they aren’t your friend.