Tuesday, November 1, 2011

IRS Collections Aternatives| Bellevue Tax Lawyer

Whether IRS collection action is just beginning, or the IRS has already filed a levy or lien against your wages or property, one way to stop IRS collection activity is through collection alternatives.  Collections alternatives include an offers in compromise; installment agreements; online payment agreements; partial-pay installment agreements; and currently not collectible status.  In this post I will discuss collection alternatives except for the offer in compromise, which I discussed in my previous post.

The first step in deciding which collection alternative is available to a taxpayer is determining his ability to pay based on the IRS standards.  Ability to pay is determined using IRS Form 433 and the financial standards published on the IRS website.  Form 433 asks the taxpayer to list his assets, liabilities, income, and expenses.  The collection alternative chosen determines the interpretation of this form and the information disclosed on it by the IRS and will be discussed below.

Currently Not Collectible: If you do not have a large amount of assets and your monthly expenses exceed your income, there is a chance the IRS will place your account into currently not collectible status.  When an account is in currently not collectible the IRS suspends all collection activity and collection activity is suspended until a time when the IRS determines that a taxpayer has an ability to make payments. 

Partial-Pay Installment Agreement: On the same idea as currently not collectible, if a taxpayer has some money in excess of his expenses but not enough to pay the liability in full before the statute of limitation on collections expires, the IRS will, occasionally grant a partial pay installment agreement.  A partial pay installment agreement stops IRS collection activity, but monthly payments are required until the expiration of the collections statute of limitations.  The collections statute of limitations is 10 years from the date the return was filed or the tax was assessed.

Installment Agreement:  An installment agreement is fairly self-explanatory.  A taxpayer agrees to pay the outstanding tax liability within a given number of years.  In most situations the IRS wants full payment within 3-5 years.  The part that causes some problems with an installment agreement is the IRS must accept the terms of the agreement and if you have equity in your assets to pay the amount in full the IRS will occasionally reject an otherwise reasonable request. 

Online Payment Agreement:  The Online Payment Agreement is a newer and great addition to the IRS collection alternatives.  If a taxpayer owes less than $25,000 and is able to pay the debt within 5 years the IRS will generally accept the payment agreement.  If the taxpayer owes less than $10,000 and can pay in full within 3 years the IRS is required to accept your offer.  Another nice benefit of the online payment agreement is that you will know what you have to pay each month as soon as soon as you complete the process.

If you have any questions please contact me directly or leave a comment.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes and tax law on the web.  Please do not rely on this article without consulting a tax professional.