An Overview of the IRS Tax Collections Process for Non-Tax Lawyers
21. Installment Agreements
The next thing I want to talk to you about is Installment Agreements or payment plans.
The IRS is famous for accepting payment plans for liability. They recognize the taxpayers who may owe a large liability may not have all the money upfront. Therefore, in order to get back in the compliance they need to be put on the payment plan.
There are four types of payment plans that you should be generally be aware of.
The first one is what’s called an automatic payment plan or an automatic installment agreement. An automatic installment agreement is an Installment Agreement by right.
If you owe less than $10,000, the IRS statutorily require to put you in a payment plan if you request it. That’s a very powerful tool for taxpayers with smaller liabilities and you can call the IRS, and put them in a payment plan immediately without much consideration to their financials.
The second type of an installment agreement is what we call a Streamline Installment Agreement. Taxpayer should owe $25,000 or less or in certain cases $50,000 or less can apply for a streamline installment agreement.
A Streamline Installment Agreement is usually over a period of 60 months and the IRS will take the taxpayers liability divided by 60 months, factoring in the interests and penalties that are going to accrue over the life of that 60 months, and will put the taxpayer on an Automatic Installment Agreement.
If the taxpayer is under $50,000, generally speaking financial will not need to be provided. So, that’s an effective tool to have if your taxpayer is looking for quick compliance and will accept a generally-formulated payment plan.
For example, client has $50,000. His plan can be about $825, $875 a month. If your taxpayer is going to accept that, that’s a really fast way of resolution. Call the IRS and say, “I’d like to put my client on a Streamline Installment Agreement.”
The benefit to a streamline installment agreement is generally most of the time with liabilities that are under $25,000, it happens all the time, with liabilities that are under $50,000, it happens most of the time, but the IRS will not file a lien against the client.
If you put the taxpayer into a streamline of installment agreement, then the taxpayer will not have the threat of a lien which is a very powerful tool.
The last type of installment agreement is just your run of the mill standard installment agreement. If your taxpayer owes liability that is over $50,000, the IRS would generally require financial information.
It’s important to note that over that $50,000 mark taxpayer is out of qualifications for streamline installment agreements.
Installment agreements above the $50,000 mark are not a matter of right. The taxpayer is not guaranteed in an installment agreement. If the taxpayer has sufficient assets, particularly cash assets that can be used to fulfill the liability, then the IRS is going to want that. Remember the famous saying of the IRS Revenue Officer: The IRS is not a bank.
If you submit financial information that shows $50,000 in cash or other liquid assets or assets that can be potentially sold to pay the liability, watch out because the IRS will want those assets sold to satisfy the liability in lieu of an installment agreement.
Financials for taxpayers are generally covered on three forms. The most simplest of collection forms is what we call 433F. It is just standard basic financial information. There is another form called the 433A and that is a more detailed financial statement. We have what we call 433B which is a financial statement for business.
The IRS requests this financial statement, Number one, to analyze the financial position of the taxpayer. But they also use these collection statements as tools to go after possible levy sources if the taxpayer defaults.
When you read through these financial statements just be advised that you are submitting a treasured throve of information to the IRS that they can use to potentially to levy accounts.
This is a really important consideration for businesses. If businesses list their accounts receivable on the form, then those accounts receivable can potentially be subject to levying later. It’s really important if you represent a business client who’s being asked for the 433B, and asked for their accounts receivable that potentially you work with the accounts receivable to get their accounts receivable resolved before you have to submit the 433B.