The Internal Revenue Service (“IRS”) has tremendous collection powers. Creditors must usually get a court judgement before seizing your income or assets. The IRS, by contrast, can generally seize (“levy”) a taxpayer’s income and property to satisfy debts without court involvement, if it has mailed the required notices to a taxpayer who has not timely set up a collection alternative.[i] This article talks about how you can avoid or stop an IRS levy with a payment plan.
Before applying for a long-term installment agreement (“IA”), it is important to know how they work.
There are many types of agreements, but they all share features. First, the IRS will only consider a payment plan if you are in “filing and payment compliance,” usually for the past 6 years.[ii] “Filing compliance” means you have filed all required returns or have an extension. To be in “payment compliance,” you must be current on required federal tax deposits or estimated payments. The IRS wants delinquent taxpayers to get into compliance and to stay there.
Second, an installment agreement will only succeed if you meet its terms. The terms[iii]include:
- making every plan payment on time;
- paying every additional tax on time;
- providing accurate and complete information in the plan application; and
- if applicable, providing an updated “collection information statement” on request.
If you do not meet all these conditions, the IRS will send you back into collection.
Third, an installment agreement is only a good option if you can manage monthly payments, but you cannot pay your entire debt at once However, a payment plan can be hard to secure if your proposed payment amount will not fully pay your tax debts and you own valuable property. In that situation, you might be able to argue that selling the asset would cause you or your business an economic hardship. Kennedy Law Offices may be able to help taxpayers in that scenario find appropriate financing to leverage your property’s equity instead of selling it.
Finally, a payment plan does not stop interest and penalties from continuing to accrue, and you must pay an application fee unless you are “low income.”
If you think that an installment agreement is the right fit, then it is time to figure out what your monthly payment amount should be. This is the technical part because the amount the IRS might accept depends on the plan type (there are 8) and your tax situation. If you want to apply for a payment plan on your own, the simplest way might be use the IRS online payment agreement application (www.irs.gov/OPA). However, the online application only works for plans that do not require a collection information statement (Form 433 series). If an online application does not work, then you should draft a collection information statement and an installment agreement request (Form 9465). Once you have completed the forms, you can mail them to the IRS or call the IRS at 800-829-1040 (individual taxes) or 800-829-4933 (business taxes).
Taxpayers who do not want to deal directly with the IRS have options. Kennedy Law Offices represents business and personal taxpayers throughout Minnesota. To schedule an appointment, please call 651-262-2080 or email clerk@mpkennedylaw.com
[i] The IRS must sometimes get a court order to levy property. For example, the law generally prohibits the IRS from seizing a primary residence without a court order. 26 USC § 6334(a)(13). In addition, some income is exempt from IRS levies. 26 USC § 6334.
[ii]More information is available in Internal Revenue Manual (“IRM”) section 5.14.1.4.2.
[iii]The terms are listed in IRM section 5.14.11.3(1).