If you have fallen behind in paying your income taxes the IRS will normally let you to set-up an installment agreement or payment plan to pay back taxes.
Taxpayers from West Palm Beach to Coral Springs that owe $50,000 or less you can establish a streamlined installment agreement and pay their back taxes over six years or the remaining statute of limitations on collections without the need to provide the IRS with a collection information statement (“CIS”) or give up any of their assets. A CIS provides the IRS with detailed information regarding your assets, income and expenses.
Some of our clients are in the unfortunate position of owing more than $50,000 in back taxes and therefore do not qualify for a streamlined installment agreement. If their financial condition gives them the ability to fully pay the outstanding taxes over time we can negotiate an IRS installment agreement on their behalf.
IRS Installment Agreement
This requires that individual taxpayers fill out Form 433-A Collection Information Statement for Wage Earners and Self-Employed Individuals. The IRS will first determine whether you have assets that can be used to fully or partially pay your tax debt and may require you to liquidate assets or borrow against equity in your assets. You can avoid this issue and the necessity of completing a CIS if you can pay down your tax debt to $50,000, and then establish a streamlined installment agreement.
The IRS will also review your income and expenses shown on your CIS and may refuse to allow certain living expenses in determining the amount you will pay under the installment agreement. However, we can negotiate the allowance of all expenses if we can demonstrate that you can meet your current tax obligations, pay your back taxes, including accrued interest and penalties within six years.
Example 1: Let’s assume the IRS standard housing allowance for your family size is $2,500 per month, while your actual monthly housing and utility expenses are $3,250. If you can pay your current taxes timely and also pay off your back taxes over six years, you will be allowed the actual amount ($3,250) of your housing costs in determining your installment payment amount resulting in a reduced monthly payment.
Even if you cannot fully pay your back taxes within six years because of excessive or conditional living expenses you may be given one year to modify or eliminate those expenses. By deciding to modify or eliminate certain expenses, you may be able to fully pay the liability within the six-year time frame and minimize any disruption in your life.
Example 2: John’s auto lease payment is $1,117 a month and there is 13 months remaining on the lease. The IRS standard for car payments is $517, so John has an excessive lease payment of $600. However, if John decides to lease a car for the standard amount when his current lease expires, he will be able to fully pay his tax debt within six years. The IRS will allow the current lease payment of $1,117 for 12 months, thereby reducing the monthly installment payment he’s required to make in the first year by $600. However, beginning in year two John will only be allowed the standard automobile expense of $517, which increases his monthly IRS installment agreement. This increased amount will enable John to pay off his back taxes in full within the six-year period and resolve his tax problems.
If the above one-year rule does not help and you require more than six years to fully pay, only necessary expenses as provided IRS standards will be allowed. If your facts and circumstances warrant an increase in these standard amounts, East Coast Tax Consulting Group will negotiate for higher allowable expenses.
Our Boca Raton tax consultants help taxpayers in West Palm Beach, Coral Springs and surrounding neighborhoods resolve their tax problems with IRS installment agreements, payment plans and other tax resolution strategies. After reviewing your case our tax specialists will recommend the best solution for your tax problem. Call us today at 561-826-9303 to schedule your free consultation.