Saturday, June 22, 2013
IRS To Review Partial Pay Installment Agreements
I am looking at a TIGTA (Treasury Inspector General for Tax Administration) report on partial pay installment agreements. Let’s talk about what these are, and how the report may matter to you.
If you pay the IRS over time, you are in an “installment agreement.” It may be that you do not have money to pay your 2012 tax in full, but you can pay it over 12 months. This is a vanilla payment plan, and you are paying all the tax – plus interest and penalties.
If you finances are truly pinched, the IRS may agree to a partial payment plan. The “partial” means that you will not – assuming the payments remain constant – fully pay off your tax, interest and penalties. Say that you have 7 years left on a tax liability of $42,000. The most you can pay is $300 per month. Perhaps there has been a business reversal, a divorce, or a medical misfortune. The most you will repay at $300 per month is $25,200, which is far short of $42,000. The IRS knows going in that you will not be able to pay the liability in full.
How do you get the IRS to agree to this? You have to submit detailed personal financial information. Think bank statements, copies of W-2s, copies of household bills. Then there are tables, which the IRS will use. If your expenses exceed table amounts, the IRS will either disallow the excess or ask you for more detail. A common example is pet expenses. Little Bow-Wow may be your pride and joy, but good luck persuading the IRS for an additional allowance to feed Bow-Wow or take him/her to the veterinarian.
There is one more thing: the IRS is supposed to review your financial information every two years. There is a computerized first sweep against your tax information. If your financial situation shows improvement, then an IRS employee will physically review your file. If things have actually improved, you can expect a love letter asking for more.
TIGTA found that the IRS is not always performing these two-year reviews. It also found cases of insufficient financial information as well as missing manager sign-offs. The IRS agreed with TIGTA and stated its intention to beef-up its two-year review process, as well as its documentation and sign-off policies.
TIGTA also talked about the IRS “uncollectible” status, and recommended that the IRS try to bring some of those people into partial pay status. Also known as “CNC”, this status is supposedly reserved for the most broke of the broke. These are individuals who cannot pay anything, so the IRS suspends all collection activity for a while. TIGTA recommended that the IRS review its CNC caseload to see if any of the CNC people could be transferred to partial pay. Interestingly, this was the one recommendation with which the IRS disagreed. The IRS felt that it had tried a comparable program, which failed to yield any significant results.
Can we expect more timely IRS reviews of partial-pays and CNC’s? I would normally say yes, but remember that Congress may yet decrease funding for the IRS pursuant to its 501(c)(4), Congressional obstruction and Fifth Amendment scandals. Consider also that the IRS will be hip-deep in ObamaCare starting next year - another explosive political issue. There may just be too many fires for the IRS to put out.