When a taxpayer falls behind in their tax payment obligations, figuring how to get back on track can be a difficult prospect.  Between the limitations of a taxpayer’s capability to meet their past due taxes, and the purpose of the IRS to collect as much as possible of those same taxes, it can be a long and arduous task for the average taxpayer to dig themselves out of this situation.  How to get approved for a tax payment plan?

The IRS does have several programs available to taxpayers with past due tax debt.  The IRS must also follow certain guidelines in determining both the likelihood and the capability a taxpayer has in meeting any past due tax obligations.  By knowing these protocols, a taxpayer can limit the impact making payments will have on their current financial situation.

Installment Agreement – Tax Payment Plan

The IRS allows taxpayers to set up an installment agreement.  By filing Form 9465, the installment Agreement Request, a taxpayer agrees to pay the balance remaining within a 72 month period.   If the total amount owed is less than $25,000, then the application can be completed online.  If the balance owed is between $25,000 and $50,000 the taxpayer has the option of having the payments directly debited from a bank account, pay by payroll deduction, or filling out form 433-A, which provides personal financial information to the IRS.  Any balances greater than $50,000 require a mandatory filing a 433-A.

Offer in Compromise (OIC)

An Offer in Compromise is an offer made by a taxpayer to settle a tax debt for less than the amount the IRS is currently stating is owed. The first step a taxpayer makes in settling their tax debt is by submitting to the IRS Form 656, Offer in Compromise.  This is an application to offer a set amount, either in a lump sum payment, or in a series of payments. It consists of Form 433-A that will provide the IRS with current personal financial information; and 433-B which is used to evaluate current business financial information for business owners. Both sets of information are used to evaluate if the offer the taxpayer is giving can be approved.  The criteria the IRS uses in determining is based on the financial ability of the taxpayer to meet the obligation.  It also is based on the future earning potential of the taxpayer.

When submitting an OIC, the IRS requires that the taxpayer must be current on all IRS tax filings.  In addition, the IRS requires an application fee of $186.  If the taxpayer is asking the option to make payments in a lump sum, a payment of 20% of the lump sum must accompany the application. The taxpayer must offer the amount realized value of their assets, plus the amount that could be collected over 48 months if the installment payments are to be made within five months, or 60 months if the installment payments are to be paid in more than 5 months.  Realizable value is defined as the quick sale of an asset (90 days or less) minus the amount owed by a secured creditor.

If the taxpayer is taking the periodic payment option, then the first payment must accompany the application, and the remaining payments must be made within 24 months.  If you meet the low-income guidelines as established by the IRS, then the application fee an initial payment are not required

Time Limitation

The IRS is limited in the time period they have to collect a tax debt.  It has up to 10 year to collect the taxes from the time they are assessed.  Although there are exceptions to this amount, it can affect the amount that a taxpayer ultimately has to pay, especially when submitting an installment agreement.  If the agreement means that payments would end after 10 year collection period, the IRS would have to accept payments only until the statute of limitation time period ends.
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Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS Law at (619) 595-1655 to learn more about setting up a tax payment plan.

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