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Resources:
Tax Education:
Payment Plans
The IRS has
several
types of installment agreements. Most require you to provide a
financial statement. In most cases the IRS
will restrict your standard of living standard. Professional assistance is
recommended because the risk of financial hardship is real.
Sometimes a
payment plan is not the best approach. Interest and penalties
will continue to accrue. It is possible to pay under a payment
plan and have the penalties and interest every year exceed the
payments. That certainly is no fun.
Payment plans are
not always granted automatically, especially if you have assets
available to pay the tax debt. Also, sometimes the IRS will ask the
taxpayer to extend the statute of limitations.
All tax
returns must be filed. No payment plan is permitted without
first filing all required tax returns.
A payment
plan does not stop interest on your tax debt. Generally,
interest compounds daily and is never abated. Interest accrues
on the tax, penalty and previously assessed interest.
The IRS may
ask for a waiver of the statute of limitations (ten years or
longer) as a precondition to entering into a payment plan.
During the
term of a payment plan, the IRS will retain all tax refunds. Accordingly, be sure that your tax withholding or estimated tax
payments are not overly large.
Most payment plans
are based on equal monthly payments. Deviations are possible,
but these typically involve monthly payments with additional
one-time or periodic payments. And, yes, payments must be made
on time or the agreement is defaulted.
Also, all future tax
returns and payments must be timely made, or that failure
will constitute a default of the payment plan.
The IRS charges a
fee to enter into a payment plan. That fee is currently $105,
unless the payments are automatically deducted in which case the fee is $52.
You will receive a balance due statement once a year from the
IRS.
The amount
you will have to pay is a function of three factors: 1) the
amount you owe, 2) your ability to pay, and 3) the amount of
time left on the statute of limitations for collection.
The IRS
will compute your monthly income, and subtract taxes and
allowable living expenses. You are expected pay the
balance every month to the IRS. At that level, it is
really very simple. The friction point is “allowable
living expenses.” This is where the trouble lies.
The IRS’s view of your reasonable living expenses and your idea
of reasonable living expense will probably not be remotely
related. There are ways to mitigate this problem, but many
times it's not easy. This IRS has no interest in helping you,
and many people get stuck monthly payments that are larger than
what they should be.
Another
friction point is the where you have multiple creditors. If you
owe the hospital or the credit card company in addition
to having an IRS debt, and that hospital or credit card debt has
not been reduced to judgment in court, the IRS will demand that you avoid
paying the other creditors and pay only the IRS. Your other debts are
of no concern to the IRS. There are ways of addressing this
problem also. Many IRS employees either don’t know about
them or act like they don’t know.
In summary,
obtaining a payment plan is very simple in concept. It is the
execution of the details that cause problems, which is why we
do not recommend people trying to obtain a payment plan without
professional help. Call us first. Sometimes we can find a
better solution, and even if we can’t find a better solution
than a payment plan, we can ensure that you will get the best
possible payment plan from the IRS.
And even if
you attempted to get a payment plan on your own and it did not
work out very well, call us. We will try to see if we can
fix it, but be advised that once the well has been poisoned the
project can become much more difficult.
Contact
us at taxhelp@taxdefendant.com
or
Toll Free at 1-866-216-1930
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