IRS Installment Agreements: Taxpayer Self-Medication?

IRS installment agreement

Installment Agreements: The concept of an IRS Installment Agreement is pretty basic and similar to paying for a ‘large-ticket’ purchase like a car or a home. Since most cannot afford to come up with the full purchase price of expensive goods, making payments has become the American way of ‘having now’ and paying later. This same dynamic applies to large medical expenses where finance options are available to help cover large deductibles. For many unfortunate taxpayers, these added structured payments have become common for tax debts.

Taxes are the largest expense for many American households; sales tax and real estate taxes combined with income tax, take a big bite out of the american household budget. The expense of income tax is largely overlooked because the United States federal income tax is a pay-as-you-go tax. The two ways to pay as you go are though withholding, which is standard for most employees and common for recipients of pensions, bonuses, commissions and even gambling winnings. The practice of withholding taxes keeps the vast majority of taxpayers free from trouble with the Internal Revenue Service by having their tax owed withheld and paid to the IRS from each paycheck.

The second way to pay-as-you-go is through estimated tax payments. Paying estimated taxes is the general practice for most people in business for themselves. The business owner is responsible for regularly calculating net income and calculating the amount of tax owed, then to make estimated payments to keep the fiscal year-end, final liability for the year beneath $1000. Failure to properly pay estimated taxes causes the business person to pay a penalty for underpayment of estimated tax.

Generally, most taxpayers will avoid the underpayment penalty if they either owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, or if they paid at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.

Most people in business for themselves tend to be knowledgeable and skilled at the tasks that generate their income, but have shortcomings when it comes to the bookkeeping, records management, and the organizational prowess to keep up with estimated tax calculations. Every year, many business owners find themselves in need of an IRS Installment Agreements because of their inability to lump-sum pay tax liabilities calculated for a year that ‘went by’ instead of practicing pay-as-you-go.

 

What is an IRS Installment Agreement?

Simply put, an IRS Installment Agreement is one of the available IRS tools for dealing with an unpaid tax liability; the biggest benefit, handled correctly, is the halting of any further, more aggressive, IRS collection efforts.
Many people with tax problems make a mistake by not seeking the help of trained professionals. Simply viewing an installment agreement as the means to pay off a tax bill in full could work to their detriment. The installment agreement certainly facilitates full payment by reducing the debt to smaller incremental monthly payments.This process works well to achieve the goals of the Internal Revenue Service, the collect of the tax, but may not be the best solution.

Most facing tax problems can absorb the initial setup fees and the future brunt of 36 to 72 installments on debt when the sum of tax, penalties, and interest are divided into these smaller payments. The IRS Fresh Start Program was modeled to make it easier for taxpayers to enter into payment plans and speed up collection of past due tax.
An installment agreement is a payment plan for an IRS debt. It is similar to an auto loan without credit scoring.

 

How an IRS Installment Agreement Works

You have to qualify in order for the IRS to accept an installment agreement. Credit is not a factor, but compliance is preeminent. A trained professional can pre-assess your compliance standing through an interview and accessing your IRS records. Before submitting an installment agreement, a professional should insure all unfiled taxes are prepared and on file with the IRS. Not seeking the experience of a professional could lead to mistakes, decreasing the likelihood of your agreement being accepted; all steps must be taken correctly.

With compliance completed, the taxes owed are next.

How much of a debt do you owe? Generally, the smaller the tax debt, the fewer the ‘hoops’. As tax debts get larger, the financial evaluation of the person requesting an installment payment is more heavily scrutinized. The IRS goal is to collect as much tax as early as possible. Larger tax debts definitely invoke Reasonable Collection Potential.

Reasonable Collection Potential is a ‘fancy’ term for “ability to pay”. The idea of the installment agreements is to make it so easy to pay that researching an alternative has the appearance of being a waste of time. Many buy into this thinking and avoid seeking experienced points-of-view, never discovering all available options at their disposal. Reasonable Collection Potential is really cover for “What’s the maximum you can pay, now.”

If the IRS is requesting your financials as part of an installment agreement, definitely seek the assistance of a tax help expert. Everything about you as an individual, or household, comes into play in determining the agreed amount of your installment payments. A hairdresser and a carpenter are very different from one another; both faced with an identical IRS problem, each would have a different negotiated end-result.

While financial hardship makes everything difficult to pay for, it has a silver lining when it comes to tax debts. Trained tax professionals know that the most help available when dealing with past due taxes is available to those experiencing the most financial hardship.

 

Risks of Installment Agreement

Most websites might espouse the greatest risk involved with IRS Installment Agreements is the risk of defaulting on the payment plan. And that is certainly a valid concern. Once you enter into an installment agreement for your tax debts, you are also making some promises to the government; you break your promise, you default the agreement.
The less considered risk of an IRS installment agreement is an uninformed belief the agreement is the be-all-end-all solution to resolving tax debts. Highly experienced tax debt experts employ a multi-step approach to chart a course of action for solving tax liabilities. Properly evaluated, the installment agreement could simply be one step of a larger, more beneficial fix to overcoming an unpaid tax debt.

Since the IRS has made it easier for the individual taxpayer to make payments, speeding the collection of past due taxes; installment agreements have moved to the forefront of ceasing levy action by the IRS and buying time for other elements of a broader strategy to come to fruition. These larger strategies are not clearly defined or easily found through IRS sources.

 

A Tax Debt Expert Can Help

Which of these doctors’ appointments would you prefer? One where you, as a patient, go online and enter a few bits of data so that within seconds a prescription is produced. Or, would you prefer speaking to a knowledgeable expert who interviews you, gathers and evaluates data relevant for you, consults with other expertise, and comes up with a cure for what specifically ails you?

Expert tax debt relief, when viewed in the context of a doctor’s appointment, perfectly illustrates the CuraDebt Tax Debt Relief phased approach for resolving tax issues.

The first step is the investigation.

  • When needed, tax professionals at CuraDebt request an immediate stay of enforcement with the IRS.
  • A financial analysis is done to identify your current and projected financials
  • The taxpayers master tax file is pulled
  • IRS transcripts are obtained and reviewed
  • Penalty abatements qualifications are checked, statute of limitations on collection of tax debts are evaluated, possible resolutions including all possibilities, not just installment agreements, are detailed
  • A final recommended resolution or resolutions is provided.

Second, if needed, compliance is done by making sure missing tax returns are filed (or ones with mistakes are corrected). It is important to maintain compliant with IRS rules and regulations and ensure that future returns are in good standing.

Third, the resolution that was recommended in the investigation is implemented to resolve the tax issue.
Information gathering, analysis, prescription of the cure. It is critical to do things right the first time, and by having the most experienced team, you are ensured to get the best possible results. Why simply manage the symptoms of debt when you can CuraDebt.

Get a free no obligation free consultation . 100% confidential.

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