What Do You Do If You Owe Money to the IRS and You Cannot Pay the Balance Due Right Away?

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What Do You Do If You Owe Money to the IRS and You Cannot Pay the Balance Due Right Away?

IRS Forms Can be daunting

What do you do if you owe money to the IRS and you cannot pay the balance due right away?

 

The IRS offers streamlined processing of payment plans to individual taxpayers who cannot immediately pay the balance due in full.  The current streamlined processing of installment agreements is based on the total amount due divided by a certain number of months (i.e. assessed balances below $50,000 are payable within 72 months or 6 years).  The streamlined process means that a taxpayer does not have to disclose their financial information to the IRS to request a payment plan unless the taxpayer cannot afford to pay the streamlined amount.

 

Recently the IRS has announced the testing of streamlined processing of installment agreements for assessed balances due between $50,001 and $100,000 through September 2017.  These taxpayers will be given 84 months or 7 years to pay balance due in full (note 72 months or 6 years).  This is an additional 12 months than the traditional streamline installment agreement.  This is excellent news for taxpayers with higher balances due to the IRS.

 

So if a taxpayer has an assessed balance between $50,001 and $100,000, this is a great time to request a payment plan that will pay the balance due over 84 months.  Additionally, these taxpayers do not have to disclose their financial information.  However, taxpayers must act fast.  If the IRS does not decide to extend this testing criteria beyond September 2017, taxpayers with assessed balances above $50,000 will have to disclose their financial information in order to request a payment plan.

 

  1. Streamline Installment Agreement for assessed balances less than $25,000

 

If a taxpayer has an assessed balance due below $25,000, the taxpayer can request a payment plan that will full pay the balance due over 72 months.  If a taxpayer owes approximately $25,000, their monthly payment will be approximately $400 per month.  Please note that for a taxpayer to qualify for the monthly payment plan, the taxpayer must be in filing compliance and the collection statute expiration date (CSED) must not expire prior to the 72-month period.  If the CSED expires before 72 months, the monthly payments to the IRS will increase because the time to full pay the balance due is less than 72 months.  For example, a taxpayer owes the IRS $20,000 for 2007 through 2010, and the 2007 tax balance will expire in one year.  The taxpayer must be able to full pay the 2007 balance due within 12 months, and the remainder can be extended over 72 months, or over the CSED, whichever is less.

The taxpayer can make their monthly payments to the IRS by:

  • Direct pay – go to irs.gov/payments to make a payment from a checking or saving account
  • Debit or credit card  – go to irs.gov/payments to make the payment on-line.  Please note the taxpayer may be charged a service/processing fee.
  • Check or money order – The check must be made payable to the “United States Treasury” and that taxpayer must include the primary Social Security number, tax form (i.e. 1040) and tax year (i.e. 2015) on the payment.

If a tax lien has not been filed prior to the request for the installment agreement, a tax lien will not be filed unless the installment agreement defaults.  The installment agreement will default if a taxpayer misses a monthly payment, incurs a new tax liability, and/or does not timely file a tax return.

 

  1. Installment Agreement for assessed balances between $25,001 and $50,000

 

If a taxpayer has an assessed balance that is between $25,001 and $50,000, the taxpayer can request a payment plan that will full pay the balance due over 72 months.  If a taxpayer owes approximately $50,000, their monthly payment will be approximately $750 per month.  Please note that for a taxpayer to qualify for the monthly payment plan, the taxpayer must be in filing compliance and the collection statute expiration date (CSED) must not expire prior to the 72-month period.  If the CSED expires before 72 months, the monthly payments to the IRS will increase because the time to full pay the balance due is less than 72 months.  For example, a taxpayer owes the IRS $50,000 for 2007 through 2010, and the 2007 tax balance will expire in one year.  The taxpayer must be able to full pay the 2007 balance due within 12 months, and the remainder can be extended over 72 months, or over the CSED, whichever is less.

 

Note the taxpayer with an assessed balance due between $25,001 and $50,000 only has one opportunity to request an installment agreement via the streamlined process.  The taxpayer must agree to have the monthly payments directly debited from their bank account or via payroll deduction.

 

If a tax lien has not been filed prior to the request for the installment agreement, a tax lien will not be filed unless the installment agreement defaults.  The installment agreement will default if a taxpayer misses a monthly payment, incurs a new tax liability, and/or does not timely file a tax return.  If the installment agreement defaults, the next time the taxpayer requests a payment plan and their assessed balance is between $25,001 and $50,000, the taxpayer will be asked to verify their ability to pay by completing a Collection Information Statement, Form 433F along with providing supporting documentation, such as copies of bank statements, proof of income, and monthly expenses.

 

  1. New streamlined processing of Installment Agreements for assessed balances between $50,001 and $100,000

 

Currently, the IRS is testing the streamlined installment agreement process for taxpayers who have an assessed balance that is between $50,001 and $100,000.  The testing period is going to continue through September 2017.  For taxpayers with an assessed balance between $50,001 and $100,000, the IRS is offering for a limited time, an installment agreement to pay their balance due over 84 months, without disclosing their financial information.  Note that the IRS is providing the taxpayer with an additional 12 months to full pay the balance due.

 

If a taxpayer owes approximately $100,000, their monthly payment will be approximately $1,400 per month.  Please note that for a taxpayer to qualify for the monthly payment plan, the taxpayer must be in filing compliance and the collection statute expiration date (CSED) must not expire prior to the 84-month period.  If the CSED expires before 84 months, the monthly payments to the IRS will increase because the time to full pay the balance due is less than 84 months.  For example, a taxpayer owes the IRS $100,000 for 2007 through 2010, and the 2007 tax balance will expire in one year.  The taxpayer must be able to full pay the 2007 balance due within 12 months, and the remainder can be extended over 84 months, or over the CSED, whichever is less.

 

Note the taxpayer with an assessed balance due between $50,001 and $100,000 only has a limited time (through September 2017) unless the IRS extends the program to request an installment agreement via the streamlined process.  This streamlined process means that the taxpayer must agree to have the monthly payments directly debited from their bank account or via payroll deduction and does not have to disclose their financial information to determine their ability to pay the back taxes.  If a tax lien has not been filed prior to the request for the installment agreement, a tax lien may be filed.

 

Note that if a taxpayer cannot afford to make the streamlined monthly payments to the IRS, the taxpayer will be asked to verify their ability to pay by completing a Collection Information Statement along with providing supporting documentation, such as copies of bank statements, proof of income, and monthly expenses.