Tax Payment Options You Can Afford
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Tax liabilities won’t go away on their own. The tax professionals and attorneys at the Business Law Group can help you deal with IRS collection efforts, including:
- Installment Agreements
- Liens, Levies, and Garnishments
- Currently Not Collectible
Installment Agreement to Pay Your Tax Debt
In many cases, when a taxpayer is unable to pay a tax bill in full, the IRS will allow the taxpayer to enter into an Installment Agreement to pay the tax liability through regularly scheduled monthly payments. Installment Agreements are available in many forms, including:
Guaranteed Installment Agreement
As the name implies, individual taxpayers are guaranteed to qualify for this type of Installment Agreement without having to verify income, expenses, or financial assets, as long as all of the following requirements are met:
- The taxpayer’s tax liability (excluding penalties and interest) must not exceed $10,000
- The Installment Agreement plan will fully pay the outstanding tax within three years
- The taxpayer is unable to pay the tax in full when due
- During the previous five years, the taxpayer (including the taxpayer’s spouse if filing jointly) must have filed all tax returns on time, paid all taxes owed on time, and have not entered into any other Installment Agreement
The minimum monthly payment under a guaranteed Installment Agreement is generally calculated as the total amount owed (including penalties and interest) divided over a period of no more than 36 months. The IRS will not place a federal tax lien on taxpayers who have entered into a guaranteed Installment Agreement.
Streamlined Installment Agreement
A streamlined Installment Agreement can be accomplished without having to verify income, expenses, or financial assets if the following conditions are satisfied:
- The taxpayer owes (including penalties and interest) less than $50,000, if an individual, or less than $25,000, if a business
- The taxpayer must have filed tax returns for the previous two years, or become current on their filings for the last two years
- The taxpayer must be willing and able to pay off the full tax liability within 72 months
- The taxpayer (or the taxpayer’s spouse if filing jointly) must not have entered into any other Installment Agreement in the previous five years
- If the tax obligation is more than 5 years old, the IRS may require a shorter repayment period or a voluntary extension of the statute of limitations for collection
The minimum monthly payment under a streamlined Installment Agreement is the greater of $25 or the total amount owed (including penalties and interest) divided over 72 months. The IRS will likely place a federal tax lien on taxpayers who have entered into a streamlined Installment Agreement. The IRS will also keep all tax refunds you would otherwise receive during the term of the Installment Agreement and apply the amounts toward the outstanding balance.
Financially Verified Installment Agreement
This type of Installment Agreement requires the submission of substantial financial disclosures and supporting documentation, and the IRS’s acceptance is not guaranteed. Rather, acceptance of the Installment Agreement, and the terms of the Installment Agreement must be negotiated with the IRS. While not impossible to obtain, the IRS takes a closer look at Installment Agreements under this program to determine whether the taxpayer has financial assets or personal property that could be used to satisfy the outstanding tax liabilities. To obtain a financially verified Installment Agreement, the following conditions must be satisfied:
- The taxpayer must owe more than $50,000, if an individual, or more than $25,000, if a business
- The taxpayer must have a history of payment compliance with the IRS
- The taxpayer (or the taxpayer’s spouse if filing jointly) must not have entered into any other Installment Agreements in the previous five years
- The taxpayer does not have adequate funds in checking, savings, investments, or retirement accounts to pay the total tax liability and does not have the ability to borrow the funds necessary to pay off the total tax liability
Non-Streamlined Installment Agreement
The IRS recently broadened the resolution options available as part of their Taxpayer Relief Initiatives released during the Covid-19 pandemic. One such option that was added was the non-streamlined Installment Agreement.
For taxpayers who have outstanding liabilities up to $250,000, a non-streamlined Installment Agreement can be accomplished without having to verify income, expenses, or financial assets as long as their case has not yet been assigned to a revenue officer.
The minimum monthly payment under a non-streamlined Installment Agreement is generally calculated by dividing the total amount owed (including penalties and interest) divided over 72 months, and before the Collection Statute Expiration Date expires. As with other Installment Agreements, the IRS will likely place a federal tax lien on taxpayers who have entered into a non-streamlined Installment Agreement. In addition to the federal tax lien, the IRS will also likely keep all tax refunds the taxpayer would otherwise be entitled to receive during the term of the non-streamlined Installment Agreement and apply the amounts toward the outstanding balance.
The terms of these types of Installment Agreements require complex negotiations and we strongly recommend that you have the assistance of competent legal counsel throughout the process.
Other Installment Agreements
Other types of Installment Agreements include the partial payment Installment Agreement and the direct debit IRS Installment Agreement. The Colorado tax professionals and attorneys at the Business Law Group can help you decide if one of these other types of Installment Agreements is right for you.
Common Forms
- IRS Form 2848
- IRS Form 433-D
- IRS Form 9465
- IRS Form 433-F
- IRS Form 433-A
- IRS Form 433-n
Liens, Levies, and Garnishments
What is an IRS Lien, Levy, or Garnishment?
- An IRS Tax Lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The tax lien protects the government’s interest in all your property, including real estate, personal property, and financial assets.
- An IRS levy is a legal seizure of your property, usually bank or other accounts, to satisfy a tax debt.
- An IRS Garnishment is a levy or seizure of your wages.
The Federal Tax Lien
The first step in the IRS’s collection process is usually the imposition of a tax lien, which is placed as an encumbrance on the taxpayer’s property to secure payment. After the IRS assesses your tax liability and sends you a Notice and Demand for Payment, the IRS may file a Notice of Federal Tax Lien with the county’s clerk and recorder. A federal tax lien is a publicly recorded document to alert creditors and others that the government has a legal right to your property.
IRS Tax Levy
After a lien is in place, the next step is often an IRS levy (i.e. seizure) of assets for paying the outstanding taxes. Generally, the IRS will levy bank accounts, seizing all available funds without notice to you. If you neglect to pay a tax after receiving a Notice and Demand for Payment, the IRS may send you a Final Notice of Intent to Levy. This must be provided at least 30 days before the IRS seizes your property. The IRS is not limited to seizing the assets or funds in your possession (i.e. your personal bank account). The IRS can levy any property that is yours, even if it is held by someone else, such as earned but unpaid wages, retirement accounts, dividends, rental income, accounts receivable, commissions, and the cash loan value of your life insurance.
IRS Garnishment
If collections continue long enough, the IRS may eventually garnish the taxpayer’s wages for payment toward their tax liabilities by taking a portion of the taxpayer’s wages every pay period until the taxes are paid in full. Part of your wages are exempt from garnishment and will be paid to you. This amount is based on the standard deduction and number of personal exemptions you are allowed. If the IRS garnishes your wages, it will mail IRS Publication 1494 to your employer with an explanation on how to calculate your exempt earnings. Your employer must provide you with a Statement of Exemptions and Filing Statute to complete within three days. If you fail to return the completed statement in three days, your employer is required to calculate your exempt earnings as if you are married filing separately with only one exemption. In most cases, failing to return the completed statement will result in the IRS garnishing a greater amount of your wages than it would otherwise be entitled to receive.
How to Respond to an IRS Lien, Levy, or Garnishment
In all cases, the IRS will provide notice before issuing a lien, levy, or garnishment. If you have received such a notice, it is imperative that you respond promptly and appropriately. There are a number of steps that a competent tax professional or attorney can take to prevent or limit the IRS’s collection efforts once you receive a notice. However, once a lien, levy, or garnishment is in place, it becomes harder to obtain the same relief.
Common Forms
- IRS Form 2848
- IRS Form 433-F
- IRS Form 433-A
- IRS Form 433-B
- IRS Form 9465, Request for Installment Agreement
- IRS Form 433-D, Installment Agreement
Currently Not Collectible (CNC)
In some cases, a taxpayer has no ability to pay his or her tax debts. There simply is not enough money in the monthly budget. After submitting certain financial forms along with substantiating documents, and participating in robust negotiations, we are often able to assist the IRS in declaring a taxpayer’s account as “Currently Not Collectible”. At that point, the IRS must cease all collection activity, including levies and garnishments.
What it Means to Be Currently Not Collectible
Interest and penalties continue to accrue on the outstanding tax debt placed in Currently Not Collectible status. However, the 10-year statutory period during which the IRS can collect the taxes is not paused and continues to run. If the statute of limitations for collecting the tax debt expires while the account is in Currently Not Collectible status, the IRS is permanently barred from collecting the outstanding tax.
The taxpayer will be required to provide updated financial approximately every 18-24 months to remain in a Currently Not Collectible status. Of course, if the taxpayer’s financial condition improves, the IRS can remove the Currently Not Collectible designation and resume collection activities. Any periods of Currently Not Collectible status are indicated on the taxpayer’s tax transcript with the transaction code TC 530.
How to Obtain Currently Not Collectible Status
To qualify for Currently Not Collectible status, we must generally establish that:
- The taxpayer’s monthly income does not exceed his or her allowable expenses, and there are no excess funds each month for the IRS to garnish
- The taxpayer does not have any assets or property worth levying
- The taxpayer’s financial condition is not expected to improve in the near future
When to Seek Currently Not Collectible Status
Obtaining Currently Not Collectible status is often the best approach in cases where an Installment Agreement or Offer in Compromise is not appropriate, and the statute of limitations for collecting the tax debt is about to expire.
Common Forms
- IRS Form 2848
- IRS Form 433-F
- IRS Form 433-A
- IRS Form 433-B
You Don't Have To Do This Alone!
Call the Colorado Tax Professionals and Attorneys at the Business Law Group at (719) 355-8840. This content does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.