Evergreen Tax Law

What If I Can’t Afford to Pay the IRS Right Now?

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     Given the considerable penalties and interest the IRS can add to your tax debt, along with the considerable methods the IRS has to collect debts, it would always be easiest to simply pay your tax debt right away.

     

     However, many people simply cannot afford to pay the entire amount they owe in one payment.

But there is a way to not only negotiate a monthly payment plan, but also prevent the IRS from using its more inconvenient methods of collection. This monthly payment plan is called an Installment Agreement.

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How do I set up a Payment Plan?

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     File all tax returns. First and foremost, it is important to note that the IRS will not negotiate an Installment Plan with you until all your tax returns have been filed.

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     Complete a financial statement. Next, the IRS will require a financial statement detailing all of your income and expenses (using Form 433-A, 433-B, or Form 433-F). These financial statements can be more complicated than they seem, and any intentional misrepresentation of your income or expenses could be considered a crime.

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     The IRS will review your financial statement to determine your “Allowable Living Expenses.” Allowable living expenses include those expenses that are necessary to provide for you and your family’s health and welfare and/or production of income.

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     Be Aware of the IRS National and Regional Standards. The IRS also uses a list of national and local standards to determine the maximum allowances for a family of your size in your region of the country. These standards set the limits for many common household expenses, such as: food, clothing, rent, utilities and transportation costs.

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     Regardless of the actual amount you spend on these expenses, if that number is higher than the number in the IRS national and local standards list, the actual amount you spend on many expenses may NOT be considered “necessary” by the IRS.

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     This is important because the IRS will subtract these “Allowable Living Expenses” from your income, and the number that is leftover will be used to establish how much the IRS will expect you to pay each month.

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• For example, if your income is $4,000 a month, and you have allowable living expenses of $3,300 each month, the IRS will expect you to offer to pay $700 each month when you apply for your Installment Agreement.

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How Does a Payment Plan Protect Me from the IRS?

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     You Will Not Have to Worry About a Levy. The ability of the IRS to Levy funds, wages and property is one of the most effective tools the IRS has in collecting unpaid taxes; it is also one of the most inconvenient for you to deal with. (To read about Levies, click here).

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     However, it is IRS policy that NO levy may be made against you if:

 

• A request for an installment agreement is pending;

• An Installment Agreement is in effect;

• It has been less than 30 days since your Installment Agreement Request was denied;

• It has been less than 30 days since your Installment Agreement was terminated;

• An appeal of a default, termination or rejection of an Installment Agreement is pending or unresolved.

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     Consider hiring a Tax Professional. Because your tax returns will determine how much tax you owe, and your financial statement will determine how much money you have to pay each month, it is highly advisable that you seek the help of a tax law professional when applying for an Installment Agreement (this is especially true if the IRS has filed a Substitute Return on your behalf).

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