In Part 1 of this blog series, we discussed when taxes are generally due for the average individual taxpayer, as well as some tips if an extension needs to be filed. We also discussed the 120-day payment extension the IRS provides some taxpayers if they need additional time to pay the tax due. In Part 2, we walked through the features and advantages of a Guaranteed Installment Agreement.
Making fresh, hand-churned ice cream may take a little extra effort, but the results are worth it. The same holds true when owing taxes to the IRS. Taking the time and effort to timely file your tax returns, even when you know you may owe tax and cannot afford to pay the entire amount owed by the due date of the return, may save you additional penalties, interest, sleepless nights and indigestion. Just like the cool refreshment ice cream brings when the thermometer is rising and the humidity is closing in, a Streamlined Installment Agreement can sooth your financial anxiety and set you on the right track.
Of all the types of Installment Agreement requests, Streamlined Installment Agreements are the most varied and provide quite a bit of flexibility for the taxpayer. One of the primary benefits of a Streamlined Installment Agreement is that, under certain circumstances, the taxpayer is not required to complete a Collection Information Statement. (A Collection Information Statement is a form that provides the IRS information on a taxpayer’s bank accounts, income, and expenses so that the IRS can determine if the taxpayer can make payments towards their balance due.) Another major bonus of a Streamlined Installment Agreement is that, depending on the conditions, the taxpayer may not be assessed a lien on their property, such has their home. Once a lien is filed on a person’s property, it makes it very difficult for the taxpayer to refinance their mortgage. Additionally, the lien may cause a negative impact on the taxpayer’s credit rating.
For taxpayers who owe $50,000 or less, the following conditions must be satisfied in order to qualify for a Streamlined Installment Agreement:
- Pay the entire balance due within 72 months (6 years) or on or before the collection statute expiration date, whichever period is less. (For individual income tax purposes, the collection statute expiration is generally 10 years from the date the tax due is assessed.)
- Taxpayers may make their monthly payments via direct debit, payroll deduction, check or credit card.
- A Collection Information Statement may be required if the taxpayer previously missed or failed to make payments on a balance due between $25,001 and $50,000.
- For balances $25,000 and under, generally, no Notices of Federal Tax Lien will be filed by the IRS.
- For balances between $25,001 and $50,000, generally, no Notice of Federal Tax Lien will be filed by the IRS if the taxpayer pays their monthly installments via direct debit or payroll deduction. If a taxpayer chooses another way to pay, a Notice of Federal Tax Lien determination will more than likely be made by the IRS.
The IRS has been conducting a pilot program that has expanded the criteria for approving taxpayers who make a streamlined request. One of the most helpful expansion items of this pilot is that taxpayers who owe taxes, penalties and interest between $50,001 and $100,000 may be able to accelerate the processing of their installment agreement request. This acceleration will be made possible if a taxpayer requests a monthly installment agreement amount that will pay the total amount due within 84 months (7 years), or submits a payment request that pays off the entire amount due before the collection statute of limitations expires. With balances over $50,001, the IRS will file a Notice of Federal Tax Lien. However, if it is in the best interest of the IRS, the IRS may not enforce a Notice of Federal Tax Lien. For example, if a taxpayer can refinance their mortgage so that he/she is able to pay their entire tax liability or reduce their mortgage payment enough to make installment agreement payments, the IRS may not place a lien on the taxpayer’s home. Like the cherry that is placed on the top of a great ice cream sundae, taxpayers who owe between $50,001 and $100,000 may not be required to submit a completed Collection Information Statement if their payments are made via direct debit or payroll deduction. This Installment Agreement pilot program is expected to be available until September 30, 2018. If the program continues to be successful, the IRS may extend it.