Fresh Start Installment Agreements

Fresh Start Installment AgreementsIf you have the abil­ity to pay your tax lia­bil­i­ties in full based on your income and assets, but are unable to make a lump sum pay­ment, there is a way to avoid pay­ing the total taxes due at one time and this is accom­plished by means of an install­ment agree­ment or IA.

A tax pro­fes­sional can help you nego­ti­ate an IA with the IRS in sev­eral ways: over the phone, by sub­mit­ting a writ­ten offer or elec­tron­i­cally. Before this, how­ever, your finan­cial infor­ma­tion must be gath­ered and ana­lyzed so that an accept­able amount can be offered to the IRS agent or col­lec­tion officer.

The taxpayer’s finan­cial infor­ma­tion is usu­ally col­lected by mak­ing him or her fill up a Col­lec­tion Infor­ma­tion State­ment (CIS). The pur­pose of the CIS is to deter­mine the taxpayer’s abil­ity to pay. From this, the tax pro­fes­sional and the IRS can deter­mine the taxpayer’s monthly dis­pos­able income, which is defined as income remain­ing after allow­able expenses are deducted from gross income. Exam­ples of allow­able expenses are home mort­gage or rental pay­ments, util­i­ties, car expenses, food and cloth­ing allowances. Deduc­tions from the taxpayer’s income that are required by law (such as taxes and social secu­rity con­tri­bu­tions), as well as court ordered pay­ments like child sup­port and alimony, are also deductible.

There are instances when only min­i­mal finan­cial infor­ma­tion will be required from the tax­payer to be approved for an IA. If the tax­payer owes taxes, penal­ties and inter­ests not exceed­ing $50,000.00, he or she will qual­ify for a so-called stream­lined IA under the IRS fresh start pro­gram, wherein only min­i­mal finan­cial infor­ma­tion is required. Under this pro­gram, the IRS will not make any deter­mi­na­tion whether a lien may be imposed and man­age­r­ial approval of the IA is not required. A lien is basi­cally a charge or claim on the taxpayer’s prop­erty to secure the pay­ment of taxes due.

Also, the Inter­nal Rev­enue Code (IRC) man­dates that if the tax­payer owes $10,000 or less in taxes, the IRS must approve an appli­ca­tion for IA. The only require­ments are: the tax lia­bil­i­ties must be paid in 3 years, tax­payer must not have failed to file tax returns and/or pay taxes nor entered into an IA within the last 5 years, and the tax­payer must agree to com­ply with the terms of the agree­ment and tax laws for the dura­tion of the IA. Take note that the $10,000 thresh­old excludes penal­ties and interests.

One of the advan­tages of apply­ing for an IA is that while the IRS is con­sid­er­ing it, the IRS can­not levy the taxpayer’s prop­er­ties. Also, if the appli­ca­tion is rejected, no levy will be imposed within 30 days after rejec­tion and dur­ing the pen­dency of any appeal on the rejec­tion. A levy is legal seizure or tak­ing of a taxpayer’s prop­erty by the IRS to sat­isfy a tax debt.