Tax Debt

No one likes tax debt or be reminded by the IRS that they have not paid their outstanding bill in full.  So why do some of us position ourselves for the world’s greatest collection agency, the Internal Revenue Service (IRS) to do just that?  Once in their cross hairs, you will not shake them off.  Acknowledge yes, I am indebted to you.  Then come to an agreement to pay this debt over time.  Accepting responsibility is the first step.   Initiating a solution to pay off your debt is powerful in itself.

Most taxpayers who owe the IRS arrange to pay their tax bill over a period of time.  There are many methods to do this.  An installment agreement is a great instrument used to accomplish this goal.  It allows you to avoid aggressive collection actions. This keeps the IRS at bay.  No threatening IRS letters as long as you remain in compliance.

There are two ways to request and establish the agreement:  online at the IRS website or at the time you file your tax return.

Request Your Installment Agreement Online

To apply on-line, your tax due balance cannot exceed $50,000 to include penalties and interest.  Pay the exceeding tax debt balance amount down to apply online.  Be ready to fill out Form 433-D Installment Agreement.  If you are in a position where you are unable to pay your balance down under $50,000.  Then you will be required to submit a form 433-F, 433-B or 433-A.  Your guarded financial information is sought after by the IRS.  Probing questions to get balances in bank accounts, investment accounts, home equity, and other asset information is required for you to disclose.  Face it, the IRS is seeking to protect their position to collect what is due to them at this point.  After all, you are requesting to pay your debt over time and they want to know your financial position in case there is a default on your part of breaking off the agreement.

Guaranteed Installment Agreement

When you owe less than $10,000 a guaranteed installment agreement can be applied for over the internet.  No Form 433 to be filled out unless you wish to pay less than the suggested minimum the IRS requires.  Again, avoid the intrusive financial questionnaire by getting the balance below the $10,000 guaranteed minimum threshold.

Remember that the IRS will not take collection actions during the time the following is taking place:  

• Your installment agreement is being considered
• While the agreement is in effect
• For 30 days after a request is rejected
• During the period the IRS is evaluating an appeal of a rejected or terminated agreement

Understand Your Agreement and Avoid Defaulting

The agreement will require you to pay at least your minimum monthly payment when it is due.  You are always welcome to pay more or pay it off in full at anytime during the term of the agreement.  All future tax refunds are applied to your tax debt until it is paid in full.  To remain compliant with the installment agreement, you must file all future tax returns on time and pay all taxes due on time otherwise you are considered to be in breach of the agreement and you default.

Automatic Direct Draft

It is recommended you arrange monthly scheduled payments to be drafted from your bank account.  This will lower the one-time cost of establishing the installment agreement.  In addition, you know that the IRS will receive their payment on time as scheduled.  Our mail system is very reliable, yet once the mail leaves your hands, you lose all control on the other party receiving the letter.  If you miss one payment, you should contact the IRS immediately before they take collection actions.

Know that if you default for whatever reason on your installment agreement, you will have to pay a reinstatement fee to re-establish your agreement with the IRS.

Your tax professional will be able to establish an installment agreement on your behalf.  If you need assistance, I am available to serve you here.