What Happens If I Can’t Pay the IRS Installment Agreement?

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Did you know that as of 2015, there were 10.1 million words of tax code?

That’s almost 9 million more words than there were in 1955, which means the length grows by an average of about 140,000 words every year!

Tax collection occurs at every level – state, local, and federal. In 2017 alone, there was 942 billion in state government tax revenue.

It’s expected that this year, 30 million people will have to pay their tax bills instead of getting a return.

And after entering into a payment plan, many people can’t pay the IRS installment agreement.

Taxes are daunting for many people. In fact, each year, there are tons of people who file late. And it isn’t just because they were busy.

Taxpayers avoid doing their taxes the same way that people avoid public speaking or going to the dentist. Plus, there have been many changes for 2019 so more people were wary of getting their taxes done.

What if you’ve entered into an installment agreement, but your finances have changed, and you can no longer make the payments? Keep reading to find out what to do now.

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What Is an Installment Agreement?

Not many people know what number they’ll be facing come tax season. Many taxpayers don’t even know if they’ll get a return or owe the IRS.

If you do owe the IRS, you may not have the funds or the means to pay your bill in its entirety right away. If that’s the case, the IRS may permit you to enter into a payment installment agreement with them.

You can enter into an installment agreement by calling the IRS, by going online, or by mailing in the necessary forms. Typically, you don’t have to share information about your finances to qualify, as long as your amount owed is less than 25,000.

When you enter into an installment agreement, it’s important to come to a number that works for both parties. As long as you figure out a monthly payment that guarantees the bill will be paid within a maximum of 6 years, it’s unlikely that the IRS will reject your request.

Life happens, and there are unforeseen events and costs, so sometimes it just so happens that a taxpayer can’t make those monthly payments.

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What Should You Do First If You Can’t Make a Payment?

The most efficient way to deal with the IRS, regardless of your situation, is to be proactive.

That doesn’t always mean you have to call them yourself. In fact, if it gives you anxiety or you don’t have the time, do not ignore their correspondence or put anything off. You can always work with a professional tax attorney to help who will take care of all your paperwork and correspondence along the way.

If you know that you won’t be able to make an upcoming payment, call the IRS and ask for a break. If all you’re doing is asking them to let you skip a month, it’s doubtful that they’ll reject your request.

Just be sure that you call ahead of time so that a payment isn’t already missed. This will put your account overdue.

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What Should You Do If You Can’t Make More Than One Payment?

If you aren’t trying to get out of your installment agreement, but you know that you won’t be able to make payments for a while, you may still be able to get a few months off.

The more time you ask for, the more information the IRS will ask of you. If there is one main reason why you can’t pay your bills for a while, you’ll have to show proof.

For example, if you had a dental emergency and acquired a $2,000 bill, they might ask for a copy. If you got in a car accident and have some hefty car bills to pay, you might have to show proof of that as well.

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What Should You Do If You Need Your Payment Reduced?

In the past 5 years, 1/5 of workers were laid off. The average time it takes to find a new job is 6 months. 

In addition to losing a job, there are many ways in which one might find themselves in a financial predicament.

If you need some tax debt relief by getting your monthly payment reduced, the IRS might say yes. They also might ask for proof that you’re making less than you used to.

You might have to submit pay stubs that exhibit a lower salary. You might have to show an increase in utility costs, medical bills, additional car payments, or anything else that causes you to need to pay less.

Basically, you’ll need to prove to the IRS that you don’t have a choice but to pay a reduced monthly payment.

If you can do that, there isn’t any reason why they shouldn’t say yes. After all, they’d rather receive some amount of payment rather than no payment at all.

“No payment at all” brings us to our next option.

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You Could Just Do Nothing

What happens if you miss a monthly payment and continue to miss payments? After one missed month, the IRS will mail you a Notice of Intent to Terminate Your Installment Agreement.

The IRS is required by law to send this notice after a payment is missed.

Once you have received the notice to terminate, you have 60 days to file an appeal. In your appeal, you’ll dispute the intent to end the agreement.

While that appeal is pending, the IRS is not allowed to take any action against you. They cannot take any action against you during the initial 60 day period either.

So for the 60 days plus the time during which your appeal is pending, the IRS can’t levy your bank account or your wages.

By law, the IRS is not permitted to take any action during this time. If your appeal is accepted, your payment plan will return to what it was. If your appeal is rejected, you’ll be able to then renegotiate with the IRS.

Either way, opting to miss a payment and then file for an appeal buys you a good chunk of time where you and your account will not be affected. So you’ll get a few months out of it at least.

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What If Your Appeal Is Rejected?

If your appeal is rejected, you’ll then enter into negotiations with the IRS. They may give you a month or a few months off. They may settle for a lower monthly payment.

If you show proof of your changed finances, the IRS may even give you a reduced total amount owed. They may deem the money owed as uncollectible or offer an Offer in Compromise.

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What Is an Offer in Compromise?

An Offer in Compromise only works if you’re up to date on filing all of your taxes. However, if you’re already enrolled in a payment plan, the chances are that you are up to date.

If you can prove financial hardship, you should qualify for an Offer in Compromise which allows you to settle your debt for a lower amount.

In order to prove that you suffer from financial hardship, there are a few factors considered, such as:

  • Expenses
  • Asset equity
  • Ability to pay
  • Income

If the amount offered reflects the most that the IRS can expect to receive based on given information and circumstances, they will approve the offer. As long as they can also expect to receive that amount within a reasonable period of time, the IRS shouldn’t say no.

how to submit the paperwork for an offer in compromise with the IRS

How Do You Submit an Offer?

To submit an offer, you must include the following documents and payments:

  • Form 433-A for individuals or 433-B for businesses
  • Form 656 for both individual and business tax debt
  • Corporations and LLCs must be submitted on a separate form 656
  • $186 application fee (it is non-refundable)
  • Your initial payment (it is non-refundable) for each Form 656

Make sure that you include all the required forms and the correct payments. Also, include any other documentation that the IRS has asked for.

If you decide to pay via a lump sum cash, submit 20% of that amount with your offer to be considered. If the offer is accepted, the payment will be too, and then you’ll be expected to pay the rest off within 5 or 6 payments.

If you decide to pay via a periodic payment, submit your first payment with your offer and continue to make monthly payments while the IRS considers your offer.

Note that if you meet the Low-Income Certification Guidelines, you aren’t expected to send the application fee or your first payment. You also won’t have to make monthly payments during the evaluation of your offer.

irs form 656 Low-Income Certification (Individuals and Sole Proprietors Only)
https://www.irs.gov/pub/irs-utl/f656–2016-02-00–web.pdf
irs deems account not collectible

What Does It Mean If the IRS Deems Your Amount Owed Uncollectible?

Depending on your financial situation, the IRS may deem your bill uncollectible, but note that doesn’t mean forever.

This status allows the taxpayer to remain current in their tax compliance. During this period, they don’t have to worry about enforcement action. This time also allows a taxpayer to recover from their financial setbacks.

The IRS may deem that your account is uncollectible either for the short term, or the long term.

When the taxpayer does not have income or assets to levy, they may be reported as “currently not collectible.” If a taxpayer DOES have income or assets but taking anything out of it would prevent the taxpayer from paying for his or her living expenses, then their account may also be reported as currently not collectible.

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Communication Is Key

It’s in your best interest to not ignore communication by the IRS. From the very first letter you receive, take the time to read it no matter how much you feel overwhelmed. Your best bet for receiving a reduced payment or getting some tax debt help is to stay on top of things.

If you can foresee that you won’t be able to make an upcoming payment, or payments, call the IRS before you miss one.

If you don’t have the time, or you find the whole situation confusing, or you simply do not wish to handle everything on your own, the best thing you can do for yourself is hire a someone who can help.

Having an attorney by your side is a small price to pay for someone who may be able to help save you a lot of money.

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Call an Attorney If You Can’t Pay the IRS Installment Agreement

If you can’t pay the IRS installment agreement, be proactive, and let the IRS know as soon as possible. The chances are that they’ll want to work with you rather than not.

If it’s only a month or two that you need to catch up on bills, you might be able to acquire a break by having a simple phone conversation.

When it comes to asking for more time or reducing your monthly payment, more information is required. If you end up making an Offer in Compromise, make sure that you include all of the necessary payments and paperwork or your offer will likely be denied.

Look over your financials and determine whether or not you may be deemed uncollectible or be eligible for a reduced total payment. If you can show that your hardship deems you unable to pay, you could reduce your total amount due significantly.

If you’re about to miss a payment or have missed one already and you’re feeling anxious and distraught, you are not alone. The best thing you can do for your financial freedom and your peace of mind in this situation is to hire a qualified tax attorney to take on the bulk of the workload for you.

Do you have any questions or want to know how we can help? Give us a call! You can reach us at any time of the day, 7 days a week.

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