(Part 2 of 2)
The Internal Revenue Service (IRS) announced a major expansion of its “Fresh Start” initiative to help struggling taxpayers by providing:
Offer in Compromise (OIC) – more flexible guidelines for collection potential.
Payment plans – more taxpayers can apply without financial statements. We discussed OIC in a prior article. Let’s now discuss payment plans.
Installment Agreements (Payment Plans):
An installment agreement is an option if you cannot pay all of your tax debts at their due dates. Fresh Start provisions allow you to use streamlined installment agreements to catch up on back taxes. The threshold for using an installment agreement without having to supply the IRS with a financial statement has been raised from $25,000 to $50,000. As you know, the preparation of financials is a major chore that discourages taxpayers from applying. It involves a lot of work and a lot of cost. Taxpayers who owe up to $50,000 in back taxes will now be able to enter into a streamlined agreement with the IRS that stretches the payment out over a series of years. The maximum term for streamlined installment agreements has been raised from 60 to 72 months. Individuals seeking installment agreements exceeding $50,000 will still need to supply Collection Information Statement Form 433-A (Form 433-B for businesses). TIP: If you owe more than $50,000, pay it down to $50,000 to take advantage of this payment option. Penalties are reduced (but interest continues to accrue on the outstanding balance). You must agree to monthly direct debit payments. You can go to the On-line Payment Agreement (OPA) page on IRS.gov to set up a payment plan.
As you can see, this initiative is designed to help individuals and businesses pay back taxes with less burden. IRS also promised to issue fewer tax liens. These changes supplement a number of efforts to help struggling taxpayers. Former IRS Commissioner Doug Shulman stated that the goal is to help people meet their obligations and get back on their feet financially.
TIPS – Here are my personal observations from decades of processing OICs and Payment Plans:
If you are young, healthy, and have good earning potential, IRS will probably reject your offer. On the other hand, if you are retired, have a serious medical condition, do not have enough assets, or are merely surviving now and in the foreseeable future, you have a better shot at an OIC. If in doubt, give it a try, even if you feel that your offer may be rejected. And when you give it try, take a dual approach – apply for both Offer in Compromise and Installment Agreement. If your OIC fails, move to plan B for an Installment agreement. J There’s another advantage to this dual approach: you are shooting two birds with one stone. You prepare documents and forms only once for both OIC and payment plan. It saves time, energy, money, and aggravation as well as tax representation fees. Finally, convince the IRS that they are better off getting something from you now, rather than gambling for nothing when you go upstairs, high upstairs.