Thanks to various programs, particularly the New Start Initiative (or NSI, there are numerous types of debt forgiveness from the IRS.
- Current non-collectible status
It is very rare, but the IRS may consider that your tax debt is currently not collectible. This means that they will put their tax debt on pause thanks to life mitigating circumstances that make it impossible to pay their tax liability. When your account is declared uncollectible at that time, compliance with IRS collection should be suspended. While this means that your personal assets cannot be seized, it also stops CSED. This refers to the amount of time the IRS has to charge you, limited to 10 years under the Statute of Limitations. During this time, your debt can still accumulate interest penalties and non-payment.
- Installment agreements
If you are currently unable to pay your tax debt in full, the IRS will allow you to pay in installments through what is known as an installment agreement. These agreements allow monthly payments that last until the debt is fully covered, generally established for a period of 72 months. As long as a taxpayer fully pays their tax debt, they can use installment agreements to reduce and, in some cases, completely eliminate penalties and interest. To be eligible for an IRS online payment agreement, you must owe less than $ 50.00 in combined taxes, penalties, and interest, and have filed all required, past, and current tax returns. If you don’t qualify for an online payment agreement, you can still pay in installments using Form 9465 or Form 433-F.
- Small Business Term Agreements
Small business payment plans are called In-Business Trust Fund Express Installment Payment Agreements. To qualify, your business must owe less than $ 25,000 in payroll taxes and have filed all required tax returns. Generally, these do not require any form of verification or financial statement, making it easy to apply. However, you must have employees currently on your list. If you owe more than $ 10,000 but you are still below that $ 25,000 limit, you are required to use a direct debit agreement.
- Do I still receive a tax refund?
Any tax refund you receive while taking part in an installment agreement is automatically applied to your tax debt, which means that you will not receive the refund until your tax debt is fully canceled. You must file all required tax returns on time and pay all future tax obligations in full; if you don’t, the agreement will be considered null and void.
To be accepted, your installment agreement must take into account your total income, less any necessary living expenses. Many taxpayers find that the terms of the installment agreement are often very high. Community Tax can help you determine an appropriate amount for a payment plan that you can realistically handle and are more likely to be approved by the IRS. Always be sure to propose a realistic monthly payment amount; once the agreement is accepted, it is almost impossible to renegotiate.
- Does the IRS ever deny requests for the installment agreement?
It is common for the IRS to reject a payment plan request. There are three main reasons why the IRS would reject an installment payment agreement request:
- The Collection Information Statement is false:
When you file your Collection Information Statement (Form 433-A), make sure all information is complete correct. If the IRS finds inconsistencies, it can lead the government to assume that you are concealing assets or income to evade payment of your total tax liability.
- Unnecessary Living Expenses: If the IRS finds your day-to-day expenses to be outrageous, they will deny your proposed payment plan. If you have extremely large credit card payments, donate a large amount of money to charities, or purchase high-value items, the IRS will assume that you can pay more than what you are offering.
- Previous Payment Agreement: If you have ever applied for a payment plan through the IRS and defaulted on your payments, the IRS is likely to refuse to accept any type of new proposal.
Have installment agreements been revoked?
After your payment plan request is approved, it is important that you remain diligent with your payments. IRS debt forgiveness programs are not unbreakable; The IRS has no problem revoking installment payment agreements. There are terms that both parties (taxpayers and IRS) are required to follow, but if you break these terms, the government can revoke the payment plan.
- Default on payments: If you don’t make any of your payments, the IRS may choose to revoke your contract immediately. In most cases, they will send you a notice or warning letter that gives you 30 to 60 days to keep up with your payments. After being revoked due to failed payments, you may have the opportunity to reinstate your plan by paying the outstanding balance.
- Failure to File or Pay Future Tax Returns: The Installment Payment Agreement is based on your current and future tax returns and income taxes. If you do not file or do not pay an upcoming return, the Internal Revenue Service will automatically revoke your installment agreement.
- False information: If you knowingly provided the government with inaccurate or incomplete information during the negotiation process, and they discover your deception, your agreement will be revoked and you could face severe consequences.
Ways to Reduce Grief
To reduce the penalty for underpayments, it is important to pay the estimated taxes quarterly first. Determine whether you should use the regular payment method when you expect regular payments or the annualized income payment method of unequal income amounts to calculate your estimated taxes. If you also work for an employer that pays you and withholds taxes, you may be able to ask them to withhold more taxes to offset income from other sources. You can do this by filing a new W-4 form with your employer indicating the desired new withholding amounts.
In some cases, the IRS will waive or reduce the penalty. If this is the first time you have seen an underpayment penalty, you may not have to pay, especially if you did not owe more than $ 1,000 the previous year. It is best to consult with a tax professional to know for sure if this works in your situation. The IRS may also allow exemptions for disasters, unusual circumstances, or accident events. Additionally, retirees after age 62 or who became disabled during the previous or current fiscal year may also be eligible for an exemption. To be eligible for an exemption, the justification for underpayment must be reasonable cause and not due to willful negligence. Remember that when calculating your estimated taxes, you can use IRS form 2210. Refunds can also be used to pay next year’s estimated taxes. While the IRS does not allow penalties to be deducted, there may be other ways to reduce the penalties you face in your particular situation. Contact Acadia Law Group legal advisors for a review of your tax return