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.
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