If you owe back taxes to the IRS, you have probably wished more than once that you could just have a clean slate and start over. Guess what? Wish granted! You will not get your tax ability wiped away, but you now have some options to repay the debt, start over and clear your name.
The streamlined installment agreement, which is part of the Fresh Start Initiative, helps taxpayers catch up on their back taxes. The initiative offers benefits to the taxpayer. These benefits are specific to the maximum dollar criteria and the maximum term for the agreement. For example, “the maximum dollar criteria for streamlined installment agreements has been raised from $25,000 to $50,000 and the maximum term has been raised from 60 months to 72 months” (IRS.gov, “Fresh Start Installment Agreements,” 8/20/2013).
In this section, I have explained how the streamlined installment process works and the requirements. I have also included some tips on how to complete the application forms. Keep reading.
Streamlined IRS Payment Plan Categories
The streamlined installment agreement is divided into two categories and both are based upon the balance due. To qualify under either category, you must meet the minimum requirements. Otherwise, it will be difficult to enter into an agreement that aligns with IRS standards.
For example, to qualify for the first category, you must not owe more than the $25,000. “If you owe more than $25,000, you may pay down the liability before entering into the agreement in order to qualify” (IRS.gov, “Fresh Start Installment Agreements,” 8/20/2013). Under the first category, the debt must be paid within 72 months and prior to the Collection Statute Expiration Date (CSED). Individuals owing tax will be able to use the streamlined agreement under this category. Exceptions apply.
To qualify under the second category, the balance due must be within a range of $25,001 and $50,000. Similar to the first category, if you owe more than $50,000, then you will need to pay down the balance before initiating the agreement. The debt under this category must also be paid within 72 months. All taxpayers must be compliant with both filing and payment requirements.
Under each category, taxpayers must file Form 1040 and may be subject to the Trust Fund Recovery penalty. Defunct businesses under each category must also submit one or more of the following forms: 940, 941, or 943. An operating business with income tax liabilities must file Form 1120 under the first category. Lastly, under category two, taxpayers must enroll in a Direct Debit Installment Agreement.
IRS Requirements and Benefits of a Streamlined IRS Payment Plan
There are a few basic requirements to qualify for this type of tax relief. First, as is a requirement with any of the IRS payment plans, the taxpayer must be current on all tax filings and be up-to-date on all estimated tax payments over the course of the year. Part of the incentive for the IRS in setting up payment plans is that the taxpayer abides by the terms of this agreement. The IRS will not set up a payment plan in an instance where they feel that the amount owed to the government could actually increase.
Second, the taxpayer must be able to satisfy their liability in full including all applicable penalties and interest before the expiration of the collection expiration statute date (CESD) or a five-year time period (72 months or less), whichever is shorter.
Third, a taxpayer must have a balance due (including interest and penalties) of $50,000 or less to qualify for a streamlined payment plan. Finally, the taxpayer must agree to have the installment payments set up on a direct debit system so that it is automatically deducted from their checking account.
However, as I mentioned previously, setting up a streamlined payment plan will alleviate the necessity of having to fill out a collection information statement to qualify, although the IRS still may request limited financial information to ensure that you cannot pay the balance in full. In addition, if the IRS has not filed a lien against the taxpayer, they will generally agree not to file one and no independent lien determination will be made.
The IRS will also charge you a small fee to complete the setup of your payment plan ($105 for new agreements, $45 for reinstated agreement, and $52 for direct debit agreements).
In closing, if you meet the requirements for one of the streamlined IRS payment plans then they are a great way to alleviate your balance due without too much effort expended. They can be set up quickly and easily by calling Automated Collections Systems or by visiting your local IRS service center. If you have any further questions or if I can do anything else to assist you, please feel free to get in touch with me by using the contact information on my website. However, I hope by using the information contained in this article that you will be able to resolve your IRS liability.