Today I saw an article in Accounting Today written by Jim Buttonow, CPA, regarding a new program the IRS is testing to allow people to more easily set up payment plans for their tax debt. An installment agreement is basically setting up a specific monthly amount to pay back to reduce prior tax debts to the Internal Revenue Service. Failing to set up an installment agreement means that all past taxes are due immediately including penalties and interest.
In the article, Jim states that the one-year test program, scheduled to run through Sept. 30, 2017, will allow taxpayers who owe between $50,000 and $100,000 in assessed back taxes, penalties, and interest to more easily set up an installment agreement with a simple phone call or form request.
The program will streamline payment plan set-up for more taxpayers, by:
- Increasing the dollar threshold for expedited processing from $50,000 to $100,000, if taxpayers agree to pay by direct debit from a financial account or payroll deduction.
- Increasing payment terms from 72 months to 84 months (subject to collection statute limitation).
- Removing the requirement to submit financial condition documentation that’s normally required for all installment agreements on balances of more than $50,000.
However, an important distinction of the test program is that the IRS will continue to file a federal tax lien on taxpayers who owe more than $50,000. The best course of action for taxpayers who owe between $50,000 and $100,000 may be to pay down their balances to less than $50,000. Then, they may qualify for a streamlined agreement with automatic payments, which avoids a lien filing.
Taxpayers can use two common strategies to help pay their balances down to less than $50,000 to qualify for a streamlined agreement:
- Get an extension to pay. The IRS often encourages taxpayers to get an extension to pay, so they can get the funds together to pay down their assessed balance. The IRS allows extensions of up to 120 days for taxpayers who aren’t in IRS Collection and 60 days for taxpayers who are in IRS Collection.
- Request penalty abatement. Asking for penalty relief can help reduce the liability. First-time penalty abatement can remove significant penalties for qualifying taxpayers – especially late filers with significant balances and a clean compliance history.
If you fall into the category of owing $50,000-$100,000 in past taxes, contact your CPA for help filing the required paperwork for an installment agreement, or see information on the IRS website at https://www.irs.gov/individuals/online-payment-agreement-application (this site may be updated soon with the release of this new program). His full article can be read at http://www.accountingtoday.com/news/tax-practice/irs-tests-relaxing-of-installment-agreement-rules-79494-1.html.
Jim Buttonow, CPA/CITP, directs tax practice and procedure product development for H&R Block. He has more than 28 years of experience in IRS practice and procedure.
Photo courtesy of freedigitalphotos.net/stuartmiles
