When dealing with the IRS there are very few straightforward cases. When setting up an installment agreement special circumstances abound; here’s what you need to know.
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If you are insolvent or in the midst of filing bankruptcy do not file form 9465. Contact the collections department directly, or better yet, ask your attorney or tax pro to help you. If you are filing bankruptcy, some tax liabilities may be eligible for discharge under current tax law.
If you owe more than $25,000, complete form 433-F Collection Information Statement to accompany Form 9465. Form 433-F is used to evaluate your financial position to determine an appropriate monthly payment amount. If you owe more than $25,000 and find yourself unable to pay, I would suggest contacting your tax pro to determine if you can be deemed currently not collectible or to determine if you are a candidate for an offer in compromise.
It takes about 30+ days for the IRS to consider your request for an installment agreement. During that time agents are not allowed to take any collection actions affecting your property. In fact, the IRS will not levy or seize assets while your agreement is in effect or for 30 days after it rejects your request for an agreement or for any period while you appeal the rejection. And, as long as you remain in compliance, it will leave you alone.
If during the course of the agreement a month comes up in which you are able to double your monthly payment, do it. But this doesn't take you off the hook for the following month. If you fail to make the next month’s payment, thinking you are paid ahead, you will instead find yourself in default.
There may also be a time when you are unable to make the payment. Don’t just skip the payment and hope they don’t notice, step up. Call the IRS and tell them your problem and ask for a reprieve--you should be given two reprieves before agents start getting testy. If something major occurs (you lost your job or have become disabled) and you know you won’t be able to honor the agreement, let the government know immediately. Here again, you may be allowed a “currently not collectible” status with a one year reprieve. Of course, penalties and interest continue to accrue.
If you are already on an installment plan for prior years and find yourself owing again, don’t file a form 9465. Call collections and request that they combine the current year liability with that of the prior year(s). The IRS does not take kindly to repeated failures to pay.
But it will, albeit reluctantly, agree to oblige you. And only if you are combining two years of liabilities. If you are on year three, you will be met with some resistance and questions about why you are continuing to not meet your tax obligation. You will be asked to adjust your withholding at work so that enough is deducted each payroll period. Or, if you are subject to estimated tax payments, you will be encouraged to honor those rather than take that long overdue vacation to Fiji or indulging in other luxuries like groceries and rent. If it’s the latter, you’d have to skip in order to oblige, you may consider discussing the possibility of being deemed “currently not collectible.” This gives you a one year reprieve to get your finances in order.
The IRS will reject a request for an installment agreement if you were successful in having an offer in compromise accepted within the past five years. One of its criteria to accepting an offer is that the taxpayer remains in compliance by timely filing and paying all taxes due for the subsequent five years.
If at any time during a discussion with collection personnel you feel you are in over your head, stop the interview and tell the collector you need to discuss your situation with your tax pro. It can be quite a relief to have an experienced professional optimize your IRS experience.
Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know,” available at all major booksellers. Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.