Need an IRS Tax Payment Plan? Here are your options!

More often than not, when you owe the IRS you will be put into a payment plan. This sounds simple, but it's not, since there are various plans you may or may not qualify for. Below is the "down and dirty", nuts & bolts list. As always, I recommend having someone negotiate these for you if you owe a significant amount, that is, over $10,000.

Streamline Installment Agreement

This agreement spreads your payments over 6o months.

To qualify for this installment plan agreement, you must...

• Be fully compliant. This means that all your returns are fully filed for the last 3-4 yrs.
• Your liability's CSED, or tax expiration date, cannot expire within 5 years and 7 months. So, if your liability expires in 5 years and 6 months, you won't qualify.
• You cannot owe more than $25,000.

Negotiated Installment Agreements

These agreements are generally more complex and are for tax debtors owing over than $25,00. They are termed "negotiated" because the IRS requires full financial disclosure, whereas with streamline agreements they don't.

1. "Ability to Pay" Installment Agreement

This agreement will fully pay off your liability. Payments are based on your monthly disposable income. The IRS will also make sure that before you enter into this agreement, you have liquidated all assets in order to lower your liability.

2. Conditional Installment Agreement

This agreement uses your actual expenses, if they are necessary living expenses, when trying to determine income and expenses. However, you must pay off your liability both before the CSED expires and within 5 years.

3. Partial Pay Installment Agreement

This payment agreement is the Holy Grail of installment agreements and is very rare. This is because the amount you pay monthly will not pay the tax in full before it expires. This agreement uses the IRS' allowable living expenses in calculating your agreement. This means that the expenses included are the ones the IRS says are OK for you to include, which may differ greatly from your actual expenses.

4. Lifestyle Adjustment Installment Agreement

This installment agreement allows for payment with actual expenses for a determined period of time (usually a year) in order for you to change your lifestyle. In essence, the IRS is giving you time here to decrease your expenses to an acceptable level, as determined by the IRS' allowable living expenses. Then, your IRS payment goes up to your "ability to pay" amount.

If you wish to read more on payment plans with the IRS, I recommend these posts...

Installment Plan Agreements
More on the Partial Pay Installment Agreement
When You Owe Over $100,000
The Streamline Payment Plan
Installment Agreement Alternatives

Taxes Can Be Scary: Part 6

Tax Fear # 6

Afraid to file because I cannot pay what I owe.

I understand. I really do. You are afraid of the consequences for not having the money to pay when you file your return. I get that. But you have to understand that the consequences for not filing can be much scarier than what could happen if you file and can’t pay. Trust me, the IRS penalty for not filing is actually worse.

It is not a crime to file your tax return and not pay what you owe. By saying that, I mean that the IRS will not have you arrested because you didn’t have the money at the time you filed your tax return. However, you will face much harsher financial consequences by not filing at all and not paying what you owe.

If you owe tax and don't file on time, the late-filing penalty is usually 4.5 percent of the tax owed for each month, or part of a month, that your return is late. However, if you file on time but just can't pay your tax bill then, you'll generally face a late-payment penalty of only one-half of 1 percent of the tax owed for each month, or part of a month, that the tax remains unpaid.
The total nonfiling and nonpayment penalties could reach a cumulative 25 percent maximum penalty. But if you file your forms on time and then make arrangements to pay, you can avoid taking that hardest tax penalty hit.

Trust me, it’s in your best interest to file your tax return and if you find yourself in a situation where you cannot afford to pay the bill, Uncle Sam will work with you. The IRS can set up an installment agreement with you so that you can pay off the debt over time. If you file and cannot pay, there are options. If you do not file at all, you will end up screwing yourself in the end.

Cheers!
Taxus

Further Reading:
IRS Penalty Abatement- Can You Really Get Rid of Penalties?

Tax Term of the Week

Compliance- In order to be in full compliance, all taxes must be paid up to date and all returns required to file must be filed to date. Therefore, if submitting an OIC, IA or CNC (Status 53) for an individual, the taxpayer must have all estimated tax payments paid to date and returns filed. If submitting an OIC or IA for a business, the taxpayer must have paid all taxes for the past two quarters and filed all returns.

The Need for Compliance

When dealing with the IRS and more specifically, a tax liability, it is extremely important to be in compliance with the IRS. In order to be in full compliance with the IRS, all taxes must be paid up to date and all returns required to file must be filed to date. Obviously, full compliance should be a goal for every taxpayer.

It’s a requirement to be moving towards compliance with the IRS when submitting an Offer in Compromise, Installment Agreement, or Currently Non-Collectible (Status 53). The past tax debt does not necessarily need to be paid off at that time, but the taxpayer must have all estimated tax payments paid to date and all returns filed. If you are going to submit an OIC or IA for a business, you are going to need to have paid all taxes for the past 2 quarters and filed all returns. The IRS will not even begin to have a conversation concerning a tax settlement or installment agreement until all returns have been filed.

I suggest consulting with a tax professional before your tax liability gets out of hand. A tax resolution firm will be able to help you get back into compliance with the IRS and bring you some peace of mind.

Cheers!
Taxus

You Walk Away…But Taxes Can Bring You Back

Most taxpayers are totally unaware of the potential tax bill left behind when they foreclose on their home. In many cases, a homeowner believes that foreclosure might somehow end the financial misery associated with owning a home, but that is just not true. Nine times out of ten, the tax problem associated with a foreclosure results from the the lender forgiving some of the loan. This happens when the lender forecloses on the property and sells it for less than the outstanding mortgage. If there is a $100,000 mortgage and the home is only sold for $90,000, guess who is responsible for paying the tax on the $10,000 that was forgiven…that’s right: the borrower. The difference for which the borrower is no longer responsible is considered “cancellation-of-debt income” and is taxable income. Even though you aren't selling the house and the bank is, the IRS views the transaction as if you were the seller. That means in the end, you could owe taxes on the sale. I’m afraid this bad news comes directly from the IRS, via Publication 544:

"If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. This is true even if you voluntarily return the property to the lender. ... You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized."

Another simplified example: You borrow $35,000 and default on the loan after paying back only $15,000. If the lender is unable to collect the remaining debt from you, there is a cancellation-of-debt of $20,000, which is generally taxable income to you. Bottom line: you can walk away but taxes bring you right back.

If you wind up owing additional tax and cannot pay it in full, the IRS urges that you request an installment agreement with the agency. Often this process can be difficult and time-consuming. If you need assistance with this process, a tax resolution firm may be your best bet.
-Taxus

Payment Plan- by Tippy Taxes

Once your installment agreement is established; the IRS will charge a one-time user fee of $105.00. This fee will be reduced to $52.00 if you choose to set up a Direct Debit from you checking account. Taxpayers with income at or below established levels, based on the Department of Health and Human Services poverty guidelines, can apply and be qualified to pay a reduced user fee of $43 for establishing new agreements including agreements where payments are deducted directly from your bank account. You also have the option of submitting your payment by way of payroll deduction or by mailing your check. If mailing a check please make sure you have the necessary information on the check to ensure proper application. Include your social security number, the year the payment should be applied to, type of tax being paid and daytime telephone number.To request a Direct Debit from your checking account use form 433-D, it includes complete instructions for completing the form. If you wish to initiate a Payroll Deduction complete form 2159.Should you default on your installment agreement and wish to have it reinstated they will charge a new fee of $45.00.As always consult the experts when settling your issues with the IRS.

-Shared by Tippy Taxes

Installment Agreement: Partial Payment- by Tippy Taxes

There is another form of installment agreement that the IRS recognizes and that’s the Partial Payment Installment Agreement. This is were the taxpayer has submitted a full financial statement and can only pay a portion of their debt over the course of their statute; (i.e. Taxpayers debt is $100,000.00; the monthly payment the taxpayer can pay toward that debt is $500.00. $500.00 x 12 months is $6000.00 x 10 years equals $60,000.00), hence, partial payment installment agreement. This became an option January 17, 2005. Prior to that date the taxpayer was left with only the option to full pay.For additional articles "Installment Agreement" "Streamline Installment Agreement" and So you owe the IRS - What next?.

-Shared by Tippy Taxes

Installment Agreement- by Tippy Taxes

There are several options a taxpayer has when he/she goes to settle IRS debt. One of those options is to establish an installment agreement. An installment agreement is a monthly payment plan. There are several thresholds the taxpayer needs to consider when establishing an installment agreement with the IRS, they are as follows;$25,000 or lessOver $25,000 but less than $100,000Over $100,000The higher the debt the more difficult it becomes to establish an installment agreement and the more documentation that will be needed to resolve the situation. When the debt is less than $25,000 the taxpayer has 2 options one is to establish a streamline installment agreement. This is where the taxpayer’s debt is divided into 60 equal monthly payment installments. If the taxpayer is unable to pay an installment agreement of this magnitude one could submit a full financial statement to the IRS to see if they qualify for a lesser installment agreement. The IRS has established National Standards for this payment plan.Debt that exceeds $25,000 always requires a full financial statement. Debt that exceeds the $100,000 threshold is handled by a specialized unit known as the “Large Dollar Unit”.

Again, each step along the way requires more financial information from the taxpayer and becomes more and more difficult to resolve. The IRS requires your financial information to be submitted using the form 433A for Individuals and 433B for Businesses. There are companies out there that offer free tax consultations. It never hurts to seek the advise of experts when it comes to your financial future. The IRS Problem Solver is also a good source of information when it comes to Installment Agreements, check them out.

-Shared by Tippy Taxes

Installment Agreement

An Installment Agreement, also referred to as a payment plan or payment arrangement, is a mutual agreement between the IRS and a taxpayer to allow the taxpayer to pay their delinquent debt over a specified period of time. Individuals who owe $25,000 or less in combined tax, penalties, and interest may request a payment agreement. In order to be considered though, all tax returns must be filed and all estimated tax payments must be made.

At times, this process can be rather difficult and might eventually require the assistance of an authorized representative. I can equate this to those who try to represent themselves in a court of law....it's always an option, but not always the best route to take. If an Installment Agreement is what you seek, there are those out there who can help.