Using an Installment Plan to Pay IRS Back TaxesAtlanta CPA on Avoiding Common Pitfalls When Using IRS Installment Plans
Installment plans are great options for taxpayers who are not able to either qualify to submit an Offer in Compromise or to pay the tax in full, while asking the IRS for penalty abatement. Though these are often much better financial options, as they frequently result in a lower cash outlay. These options are only for those who either meet the rules, guidelines and procedure for submitting an Offer or who have the financial ability to pay the tax and interest in full at the time of requesting a penalty abatement.
If you are in the midst of addressing IRS tax issues and trying to evaluate between an Offer of Compromise or an Installment plan, frequently the options look bleak, as often they are. However there is good news for those who are desirous to look “outside the box” in looking to solve your IRS tax problems. Knowing the ins and outs of varying programs will do much to help you know what is in your best interest.
IRS Installment plans are essentially long range, but are frequently the most convenient way to solve an IRS tax bill short term. However this option is frequently the worst option as interest and penalties continue to be assessed thus ensuring that you continue to owe even more additional monies rather than less. Form 9465 is used by taxpayers with the IRS to make an Installment Agreement Request to set up a monthly payment plan. If at all possible it is recommended that before you set up an installment plan, you look to other options available such as a loan from a bank.
Also great care should be taken to be a forward thinker when doing your cash flow and to plan long term to ensure that you will be able to fulfill the financial commitment you make in a Formal IRS Installment Plan. For example, if you owe taxes for the 2009 tax year and have not yet filed your 2010 returns and have not yet done adequate tax planning for 2011, setting up an Installment Plan with the IRS might be one of the worst things you can do. Care should be exercised to both, get all of your 2010 returns filed first and then to evaluate your 2011 taxable income to ensure that you will have the taxes and monies to pay all of the tax years in question. Failing to do so can be especially problematic as one of the rules of being on an Installment Plan is that you have to stay current on all of your filings and payments for the duration of the payment period, or the IRS will void the Installment Agreement and reinstate collection efforts. Considering all of these options allows you to have a much less problematic agreement and avoid unnecessary headaches, professional fees, and additional fines, penalties and interest.
For those who owe the Internal Revenue Service less than $10,000 there is an option called a Guaranteed Installment Agreement. In general terms to qualify for this you have to have timely filed and paid all income tax returns for the last five years and have not used an installment agreement during this period.
For amounts owed the IRS of more than $10,000 then the plan is still available but the IRS may request additional information to determine and validate that you are not able to pay the present amount owed in full. As part of the Installment rules for all levels of IRS debt, the IRS expects you to file and pay all future tax filings on a timely basis. Failure to do so will immediately invalidate your Installment Agreement allowing the IRS to use liens, levies, and garnishments to effect and force collection. Typically to protect its financial interest in an Installment agreement the IRS will file a general lien necessitating taxpayers to get permission from the IRS in advance to either refinance or sale assets. Also, please note that the IRS will apply all monies as they see fit allowing dollars to be first applied to penalties and interest leaving the principal balance potentially unchanged.
Installment agreements are problematic because frequently there may be better options such as:
- Paying the tax and interest in full. Frequently if you can do this and have valid reasons or explanations as to why the monies are in arrears, the IRS will abate assessed penalties.
- Reviewing old returns. Often I have worked with taxpayers to determine that original returns were either not filed, filed incorrectly or that valid deductions were originally left off the filed returns.
- An Offer in Compromise. If you qualify the IRS will reduce your tax bill to a combination of your net worth and your “excess cash flows” over the next five years.
Representing yourself before the IRS is a recipe for disaster. Sitting down with a CPA who is well versed in tax representation issues is your best first step to getting back tax issues, payments and returns filed and paid. Finding the right solution to your tax problem helps resolve tax problems better and faster. Though an Installment Agreement is often the most convenient it often results in both prolonging the problem and the largest financial outlay.
His CPA PC (A Christian CPA Firm) Offers Free Initial Consultations/Interviews offering:
- Atlanta Tax Problem Resolution & Tax Advocacy
- Atlanta IRS/GA Offer in Compromise Submission & Filing of Back Taxes
- Atlanta Installment Plans & Tax Mitigation
- Atlanta Tax Penalties, Liens, Levies, Garnishment & Seizure
- Atlanta Trust Fund Assessments, 100% Penalty and Penalty Abatement