Clients with six-figure federal tax debts may have a new payment plan available, though the guidance from the government so far remains scarce.
Monthly IRS payment plans (aka, installment agreements) are used annually by some four million taxpayers. Most people in debt to the IRS owe less than $25,000 and they’re able to pay off their obligation without IRS liens or having to make what tax experts term a “vigorous” financial disclosure to the agency. But taxpayers who owe more than $100,000 or who can’t meet certain installment agreement conditions face the more rigorous requirements.
The IRS, however, recently piloted a program for individual taxpayers who owed between $50,000 and $100,000 that did not require financial disclosure. And this has evolved further into the “non-streamlined installment agreement” (NSIA) program for those who owe between $50,000 and $250,000.
“At this point it’s temporary, where financials aren’t required if the debt is under $250,000 and the case hasn’t been assigned to an IRS revenue officer,” said Dan Henn, a CPA in Rockledge, Fla. “If [the debt] has been assigned to an officer, the limit without financials is now $100,000.”
The general public is not aware of this option. “In fact, most tax professionals that represent clients don’t know this exists,” Henn added.
Despite little initial guidance from the IRS on how the new installment program works, tax specialists think it will be a widely used tool. One of the advantages is that taxpayers won’t have to use available assets to pay down their balances. The payments must be by direct debit, and previous payment plan defaults may require disclosure. Taxpayers opting for the program will have a federal lien filed and might want to pay the balance to less than $50,000 to enter a conventional streamlined installment agreement, experts advised.
User fees are imposed where the taxpayer enters into an installment agreement, added Raymond Edwards, the national technical tax director with Aspiriant in Los Angeles. The fee is generally $225, but some circumstances can reduce that amount.
High-net-worth taxpayers generally stay current with their federal taxes owed since it's well-known that the IRS might opt to seize bank balances or other assets where the taxpayer is believed to have the resources to pay, Edwards added.
It’s often easy to get accepted to a payment plan, which can be a handy tool when a large tax debt lands on a previously wealthy business owner who has fallen on hard times. According to Morris Armstrong, enrolled agent and RIA at Armstrong Financial Strategies in Cheshire, Conn., “As long as they are not referred to criminal investigations … IRS programs are available to help delinquent taxpayers become compliant,” he said.
“The potential downside of any payment plan is defaulting or having to renegotiate,” added Phyllis Jo Kubey, an enrolled agent in New York. “Many taxpayers agree to something they can’t manage. I don’t find my clients are aware of collection alternatives until I explain them. Many taxpayers delay filing because they are terrified about what they will owe and not being able to pay it.”
Taxpayers should not jump at these plans, however, without exploring other federal tax-payment options such as the partial payment installment agreement, the “currently not collectible” status or an offer-in-compromise, Henn said, options which may require financial disclosure.
“The first thing any taxpayer should do before signing up for an installment arrangement is to make sure that the amount is correct and is an actual liability,” Armstrong said. “The IRS has basically 10 years to collect a tax from the date of assessment. That [time] can extend due to events that pause the period.
“Resolving the federal tax issue may seem like a stroll through the park compared with resolving [tax] issues with a state,” Armstrong also warned.
