irs has a collection problem – less people to do … - 2012 - 09...installment agreements expect...

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Payment OptionsIRS has a collection problem – Less people to

do the job

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Chapter 9: Payment Options

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Payment OptionsTo combat the problem IRS has expanded its “Fresh Start” payment initiatives

Increased the “streamlined” payment programs from $25,000 - $50,000

Late penalty relief for qualified individuals

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Payment OptionsPay as you go system BUT not everyone pays. Several options for a taxpayer to deal with their tax debt, such as:

Deferred Payment Agreements

Installment Agreements (IA)

Offers in Compromise (OIC)

Currently not Collectable (CNC)

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Payment OptionsThe IRS as a creditor:

0.5% late payment penalty up to a to a total of 25% (first 50 months)

3.0% compounded daily

This yields a effective rate of 9.0% annually

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Payment OptionsConsider client’s level of discipline as each option has issues attached:Deferred Payment – Unreasonable delay

IA – Failure to adhere and back to collection

OIC – Total compliance for FIVE years or start all over

CNC – Will create a very intense collection action during last 2 -3 years of statute

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Extension of Time to PayIRM 5.14.5.5 Requirements and conditions for extension of time to pay:

It is NOT an IA and should not be treated as one

No periodic payments during extension

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Extension of Time to Pay

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Extension of Time to PayThe taxpayer is to be instructed to consider Defer other payments

Sell assets

Borrow from friends/family

Get a loan

Get a co-signer

Borrow from a retirement plan

Cash advance from credit card

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Extension of Time to PayDuring period of extension IRS is NOT to:

Issue notice of intent to levy

Issue notices of Hearing

Levy the taxpayer

The taxpayer now has time to

gather their resources

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Installment AgreementsIRC 6159 – “The secretary is authorized to enter into writtenagreements with any taxpayer…”

IRM 5.14.1 Overview Says – “are arrangements whereby … taxpayers to pay liabilities over time”

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Installment AgreementsIRC 6159 – Authority with which IRS is allowed to enter into an agreement to “facilitate full or partial collection of such liability.”

AJCA of 2004 clarified IRS’s ability to take a partial pay installment agreement (i.e. balance of the statute OIC)

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Problems with PPIA (Partial Pay Installment Agreements


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Installment AgreementsThe Problem with a Partial Pay Installment Agreement (PPIA)

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Installment AgreementsReg. 301.6159

After several years of languishing in proposed status IRS has finalized regulations governing the processing, submission and approval of installment agreements

Regulations reproduced Page 183 - 188

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Installment AgreementsImportant considerations

Enforcement is stayed during the consideration of an installment agreement request plus 30 days Good – IRS can not levy property of

taxpayer during period they consider IA request

Bad – The statute of limitations is extended while an IA is in pending status

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Installment AgreementsImportant considerations

Reg. 301.6159 (Page 183-188) – Proposed installment agreements become such when accepted by IRS as processable

A proposed installment agreement stays in processing status until it is: Accepted by IRS Rejected by the IRS Withdrawn by the Taxpayer

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Installment AgreementsImportant considerations – The suspension of the statute pursuant IRC § 6159

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Installment AgreementsThe bi-annual review of the taxpayer’s financial situation

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Installment AgreementsEffect of installment agreement or pending installment agreement on collection activity

NO levy may be made to collect a tax liability that is subject to an installment agreement

During the period that a proposed agreement is pending

During the period that an installment agreement is in effect plus 30 days

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Installment AgreementsBest Practices

As the statute suspends during the period of consideration by the IRS plus 30 days the practitioner should monitor the process.

Not infrequently a taxpayer has discovered they have had an IA under consideration for a multi-year period

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Installment AgreementsInstallment must be allowed when:

Total tax liability DOES NOT exceed $10,000

The taxpayer HAS NOT:a. Failed to fileb. Failed to payc. Entered into another IA

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Installment AgreementsNot financially able – really just has to ask for

Payments will full pay in 3 years

Taxpayer is fully compliant with ALL provisions of the code during the period of the agreement

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Installment AgreementsFailure to adhere to the terms of an IA will subject the taxpayer to the revocation of the agreement and the reinstatement of enforcement action by the IRS

IRS maintains this includes payments of estimated taxes

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Installment AgreementsExpect the agreement to be cancelled when:

1. A return due is not filed

2. Payment is not made timely for agreement or newly assessed tax

3. Failure to provide financial info

When IRS revokes an installment agreement the taxpayer has 30 days to request a collection appeal.

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Installment AgreementsA “stream lined” process of IA is available by IRS if the TOTAL LIABILITY does not exceed $25,000/$50,000

1. Calling the IRS number on the notice –only solution when ACS is involved

2. File Form 9465

3. Apply using the Online Payment Agreement (OPA)

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Installment AgreementsUser fees are charged on all installment agreements

$45 for direct debit installment agreements (DDIA)

$105 for traditional the taxpayer writes the check

$43 to reinstate a terminated agreement

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Installment AgreementsAdvantages of the Direct Debit Installment Agreement (DDIA)

Reduced Fees

Less likely payments will be missed

Certain taxpayers are eligible (unless in agreement) to have tax liens removed.

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Installment AgreementsMechanics of the DDIA

Best Practice – Send a check with request greater than the fee.

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Installment AgreementsAs part of the “Fresh Start” program there have been some changes to the streamlined installment agreement program.

Temporary but likely to be long term if not permanentExpanded period of payments from 60

months to 72 months

Increased balance due amount to $50,000 but limitations on balances above $25,000

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Installment AgreementsAs part of the “Fresh Start” program there have been some changes to the streamlined installment agreement program.

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Installment AgreementsWorking with IRS on an IA:

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Item 5 – Prepare a checklist for each item and indicate why there is no response to those items that do not apply to the taxpayer.

Consider use of Form 4822 – Will not find on irs.gov but can find Form using a Google search

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Installment AgreementsOnline Payment Agreements (OPA) run search on irs.gov to facilitate locating OPA start page

Available to ALL practitioners and there is no requirement to be registered for e-services

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Installment Agreements1. Determine Eligibility

2. Verify agreement meets criteria

3. Allowed payment agreementsa. Pay Nowb. Short Term Extensionc. Traditional Agreement

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Installment AgreementsFunctionality of the OPA• Payment due dates and amounts can be modified

on-line

• Revise previously agreed to extension to payment due dates

• Modify existing agreement to be a payroll deduction or DDIA

• Practitioners can use Form 2848 filing date as authentication method

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Installment AgreementsRequired information to complete OPA

Taxpayer’s SSN or ITIN

Taxpayer’s caller ID # on notice or signature date on Form 2848

Information required on 433-F

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Form 433-F 189

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Installment Agreements

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Installment Agreements195

Practitioner will need POA on file


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Date POA was signed by practitioner


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Installment AgreementsFailure to have a Power of Attorney on File for ALL unpaid years will prohibit you from entering the on-line payment agreement system

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Installment Agreements6. Several different types of requests can be

processed with the on-line payment agreement system

A. Pay now

B. Deferred payment agreement

C. Monthly installment plan

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Why OPA versus calling ACS – Written verification of acceptance of installment agreement.

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Offers in CompromiseThe “Fresh Start” program has changed some other calculations of an OIC:

Dissipation of assets IRM 5.8.5.16

Income earned versus equity of a business asset IRM 5.8.5.5.1

Additional expense allowances

Accept oral testimony

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Offers in CompromiseThe “Fresh Start” program IRM 5.8.5.23 has changed multiplier for acceptable offers:

Lump Sum Offers (paid in 5 months or less) now 12 x RCP plus realizable assets Short Term Offers (paid in 6 months – 24

months) 24 x RCP plus realizable assets

OICs currently in process should be examined to determined that these issues are dealt with.

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Offers in CompromiseThe “Fresh Start” program has changed whether certain types of expenses will be allowed in the determination of “reasonable collection potential”:

Government guaranteed student loans are clarified State tax installment agreements IRM

5.8.5.20.4OICs currently in process should be examined to determined that these issues are dealt with.

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Offers in Compromise

IRS Policy Statement P-5-100

1. Offers will be accepted –In the UNLIKELY event the taxpayer can not fully pay his tax liability based on the RCP

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2. When it appears that the OIC is a VIABLE alternative the Service employee assigned the case will discuss the alternative

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3. The ultimate goal of the OIC program is a compromise in the best interest of the taxpayer and the government.

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Offers in CompromiseTIGTA Audit Report 2012-30-03

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IRC 7122(d) Standards for evaluation of offers

(1) In general

The secretary shall prescribe guidelines

…. to determine whether an offer-in compromise is adequate and should be accepted to resolve a dispute.

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IRC 7122(d) Standards for evaluation of offers

The courts have interpreted that the commissioner has ABSOLUTEdiscretion in the matter of OIC acceptance

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IRSTaxpayer


Note: Form 656 updated in May of 2012

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Doubt as to collectability – Most popularOffer amount based of RCP (reasonable

collection potential) Net realizable assets plus

12 times monthly ability to pay for lump sum offers or24 times monthly ability to pay for installment offers

Effective Tax Administration

Doubt as to liability – 656L

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THREE TYPES OF OFFERS


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Offers in CompromisePayment Terms

Lump Sum Cash OfferPaid in five or less installments20% is paid upon initial offerLSA (Legally sufficient amount) = Realizable value of assets plus 12 times monthly ability to pay per Form 433-A (OIC)

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Lump Sum Offer S/T Periodic Offer

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Short Term Periodic Payment OfferMust be completed within 24 months of offer acceptanceFirst payment is made with offer AND payments must be made during offer investigation. LSA = Net realizable value of assets + 24 times monthly ability to pay per Form 433-A (OIC)

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Lump Sum Offer S/T Periodic Offer

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Deferred Periodic Payment OfferDeferred Payment Offer

Payments are made over remaining statutory periodAmount must be equal to net realizable amount of assets plus monthly ability to pay per 433-A time the number of months remaining in the statutory periodPayments must be made during offer investigatory period

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Insert: after submission

While the same total payment as an installment payment, maybe, it fixes the matter and stops further discussion.


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Offers in Compromise204

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Offers in Compromise 204


Failure to designate 20% down payment is a serious mistake and should be avoided

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Offers in CompromiseRequirements for a processable offer

1. File all tax returns “legally” required to file

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If a return is not required you must explain why

Best practice include a signed zero return for any periods in question

Be prepared to complete returns in excess of the “six” year window and/or furnish previously filed returns


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Offers in CompromiseFinal Observations

Chose wisely regarding payment options Lump sum payments on declined offers will be

retained by IRS Periodic payments will be retained by IRS and

the IRS has up to 24 months to consider offer Benefactors are likely to have little reason to

help considering high levels of uncertainty. NEW “FRESH START” PROGRAM

REDUCES COSTS OF OIC BY 75% - 66.6%

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Offers in Compromise• Excessive advertising from promoters has

created a difficult environment:– Unrealistic expectations regarding

accessibility to the program– Lack of discipline by many who have tax

problems – that is how they got there in the first place

– Large fees charged by the unscrupulous have created further financial pressures.

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Currently Not Collectable (CNC)• A request for IRS to temporarily delay the collection

process as current payment will create a significant economic hardship.

Occurs when RCP = ZERO

Can be in place until expiration of Collection Statute Expiration Date (CSED)

Request status to last contact address in same manner as installment payment requestComplete Form 433-A with request but IRS will

now accept requests over telephone in limited circumstances

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irs has a collection problem – less people to do … - 2012 - 09...installment agreements expect...

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