The Law Office of Robert Firth May 2020

FirthLaw.com 760-770-4066

Helping clients with bankruptcy, estate planning, and tax resolution.

MAY 2020

IRS Payment Plans Is Your Tax Debt Keeping You up at Night?

Sooner or later, everyone files their taxes and finds out they owe more money to the IRS than what was withheld. When this happens, don’t panic. You do have options, including several IRS payment plans. To ensure your payment plan is appropriately structured and approved by the IRS, here is what you need to know. Anyone can set up an installment agreement, but very few people realize how to structure one properly. The type of installment agreement that applies to you depends on howmuch you owe in taxes. The IRS will file your debt into 1 of 4 categories: (1) $10,000 or less; (2) $10,000– $50,000; (3) $50,000–$100,000; or (4) $100,000– $250,000. If you owe less than $250,000, you can usually set up an installment agreement through the IRS’s automated system, NACS. If you owe more than that, congratulations! You’re in the big leagues! You will have your very own revenue officer assigned to your case. Before you set up an installment agreement, you must understand a few things. First, all of your tax returns must be filed. Additionally, your future refunds will be applied to the tax debt until it’s paid in full, and you cannot reduce the number of installments with it. Now, let’s look at the four main types of installment agreements. The first option is a guaranteed installment agreement, which is typically used for a tax debt of $10,000 or less. To qualify for the plan, all of your tax returns must be filed, there can be no tax levies against you, and you have to be able to afford to pay your debt in 36 months. To set up the plan, you can call the automated IRS line or complete the IRS’s form online. It is all very easy and straightforward to do. The second option is the streamlined installment agreement. This type of arrangement is the best option for those who owe between $10,000–$25,000. For this plan, you don’t need to provide any financial

define how much you will pay to the IRS on a monthly basis.

information to the IRS. However, you must pay the balance you owe over 72 months, and the 10-year collections statute expiration date (CSED) cannot fall in that period. If the collections expiration date does fall within the 72 months, you must pay the entire balance within that period before the CSED or provide financials proving you cannot pay the amount. Your finances will then be used to determine the minimum monthly amount the IRS will accept. This is called a partial pay monthly installment agreement. The third option is the fresh start installment agreement and is for those who owe $25,000– $50,000. The payments must be made by a deduction from your paycheck or a debit from your checking account. Form 43D is used for debit, and Form 2159 is used for payroll deductions. Also, for both the streamlined and fresh start installment agreements, you might be able to get first time deductions, which can reduce the amount of money you owe. The fourth option is a standard installment agreement for those who owe $50,000 or more. With this agreement, you need to provide all your financial information. These financials will

You and the IRS may disagree on your monthly expenses to determine your ability to pay. However, if you can pay the balance owed over six years, then even if your monthly expenses exceed the IRS’s financial standards, you can still maintain your lifestyle. The more money you owe to the IRS, the more help you need from a tax resolution expert. An expert can help you negotiate an installment plan that will get you back in good standing with the IRS. Also, if your income taxes are more than three years old, you filed your tax returns at least two years ago, and you have not received an additional assessment from the IRS in the last 240 days, you may be able to discharge your tax balance in bankruptcy. If you think you can do this, talk to a bankruptcy attorney experienced in this area. Not every bankruptcy lawyer knows how to discharge taxes in bankruptcy.

-Robert L. Firth Helping clients with bankruptcy, estate planning, and tax resolution.

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