What happens when an Installment Agreement is rejected? When an Installment Agreement is rejected, fear not. You have several options. What will happen is you usually submit a request for an installment agreement to the IRS with the company financials. If the IRS decides to reject that Financial Statement, they will issue a letter. That letter is a formal rejection of the installment agreement. They say, "Dear taxpayer, we have decided to reject your installment agreement. We think you can pay." We know you want to pay $300 a month; we think you can pay $3,000 a month." The taxpayer goes, "Oh, no. I can't pay $3,000 a month." At that point you can take your Installment Agreement to the Appeals Division of the IRS through what's called the Collection Due Process Appeal. You can appeal the rejected installment agreement. That letter is your ticket. In your appeals, you file a CDP Form and get into appeals. An Appeals officer will give you a second bite of the apple with respect to your financial statement. The Appeals Officer generally is not allowed to consider new information. He has to go base on the financial statement that you submitted. But oftentimes that letter that you received from the IRS rejecting your financial statement will clue you in to what the problem is. The IRS thinks you have available equity in your home.

The IRS thinks that you have an asset that can be sold. Going through and addressing the issue will often lead to a better installment agreement being set up for the client. So it's really important to understand what the IRS is asking for and to be very careful that your disclosures on these financial statements, because wrong information particularly with respect to the taxpayer's cash flow at the end of the financial statement can trigger a higher monthly payment to the IRS than it's worth. It's important to note that when preparing cash flow, particularly when dealing with appeals, you want to minimize the delta between your client's available monthly income and your client's monthly expenses. You want to accurately reflect the actual situation of the taxpayer and what they are really spending on their monthly expenses.

It's really important that you do a very detailed financial analysis. You get the taxpayer, and their bank statements, because it is surprising what you will unearth when you actually talk to people about that what they spend money on. We've had some really great things over the years in terms of what people have spent money on. I get frequent restaurant recommendations from clients not directly but through their bank statements. Because I will see a client eating at a particular restaurant like, four or five times a week, "Boy, this must be good." But it's amazing how much information you can gleam off some of these bank statements and what they really spend money on. When determining ordinary unnecessary expenses by going through bank statements and really confirm the information that is being provided on those statements you can get a much better stand of things that they may not have included, like extra medical expenses, or extra childcare expenses, or other things that may be considered that are affecting your client's installment agreement. Those are really, really important things to consider when preparing an installment agreement and when going through and handling the appeals process.