IRS AND STATE TAX PAYMENT PLAN GUIDE

IRS AND STATE TAX PAYMENT PLAN GUIDE

If you owe a federal or state tax debt and are unable to pay off the entire amount of the liability, you may be able to enter into a payment plan with the IRS and/ or the state you owe the debt to. A payment plan agreement gives you the opportunity to pay off your debt over a specific period of time making monthly payments. Failure to make arrangements to repay your debt could result in a variety of ugly consequences, such as tax liens, tax levies, wage garnishments, and bank levies.

TAX RELIEF
The following provides a detailed look at the payment plan process. Payment plans are offered by the IRS for individuals and businesses that owe a federal tax debt, but are unable to pay off the full amount in a single lump sum. In addition, most states also provide a payment plan option for individuals who owe a state tax debt and are unable to pay it off in full. The following offers information on:
• A look at what a payment plan actually is, as well as the difference between a Partial Payment Installment Agreement (PPIA), a Guaranteed Agreement, and an In-Business Trust Fund Express Installment Agreement.
• Advantages and disadvantages associated with setting up a payment plan
• Completing and submitting your federal form, as well as what to do after
• Completing and submitting your state form
• Tips designed to improve the chances your offer is accepted
In addition, there are links included to the forms you will need to complete your offer.
Chapter 1: A Complete Look at Your Federal Payment Plan Agreement Options
Chapter 2: The Advantages and Disadvantages Associated with an IRS Payment Plan Agreement
Chapter 3: Completing and Submitting a Payment Plan Request
Chapter 4: After You Have Filed Your Payment Plan Request
Chapter 5: A State-by-State Guide to Requesting a Payment Plan

Before we go any further, there is one more thing you should know. The IRS does allow taxpayers to select a Power of Attorney (POA) to represent them in front of the IRS. If you plan to use a POA to take care of matters with the IRS, you will need to complete Form 2848, Power of Attorney and Declaration of Representative. The person you choose to represent you must sign on page 2 and meet be one of the following:
• Attorney in good standing with the state bar
• A licensed Certified Public Accountant (CPA)
• An Enrolled Agent by the IRS
• An individual who works as a fulltime employee for you
• A member of your immediate family, such as spouse, parent, child, grandparent, grandchild, step-parent, step-child, brother, or sister

Chapter 1: A Complete Look at Your Federal Payment Plan Agreement Options
According to the IRS, monthly payments made through an installment agreement will be considered if you do not have the financial means to pay off your entire debt in a single lump sum. However, you are only eligible if you have filed all your required federal tax returns and you meet the eligibility requirements discussed below.
You should be aware that the eligibility requirements may differ slightly from one state to another. In chapter 6, you will find a guide that details the requirements for each state, as well as how to apply for a payment plan agreement and contact information for any questions you may have.

Are You Eligible for an Online Payment Plan Agreement?
The IRS has made it very easy for individuals who owe a tax debt to set up a payment plan agreement, provided they meet the following requirements.
• All required federal tax returns have been filed.
• The individual(s) owe $50,000 or less in combined individual income tax, interest, and penalties. (If you owe more than $50,000, you still have options, which will be discussed in detail below.)
• If you are requesting a payment plan agreement for a business, the amount of payroll taxes you owe must not exceed $25,000. Again, you must have filed all required federal tax returns.
• Be aware that if your debt exceeds $50,000, you have the option of paying down your debt to this amount and then applying for an online payment plan agreement.

If you meet all of the requirements discussed above, you are eligible to apply for an online payment agreement, either as an individual or for your business. How to do this will be discussed in detail in chapter 3.

What If I Do Not Meet the Eligibility Requirements to Apply for an Online Payment Plan Agreement?
Just because you are eligible to apply for an online payment agreement does not mean all hope is lost. In most cases, the IRS will still agree to a payment plan, however, the application process is not quite as simple. The application process will be discussed in detail in chapter 3.

If you still have questions about payment plan agreements with the IRS, the IRS has created a video that you may find helpful entitled Online Payment Agreement Introduction. It can be viewed here.

The Different Types of IRS Payment Plans
The IRS offers types of agreements. They include:
• A Guaranteed Agreement, which requires that you owe less than $10,000 to enter into. In fact, it is guaranteed by the law.
o To estimate your monthly payment, divide the amount owed by 36 months. If this an amount you feel you can pay, follow the instructions in Chapter 3 for setting for a payment plan. (Don’t forget that penalties and interest will continue to accrue until the entire debt has been paid off.)
o Typically, a lien is not filed with a Guaranteed Agreement. However, if one has been filed, wait 30 days, make sure your payments are being directly withdrawn from your bank account, and then file a request to have the lien waived or taken off. To do this, you will need to complete and submit Form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien.
o This type of agreement does not require that you submit a financial disclosure.
o Instructions on how to file for a Guaranteed Agreement are detailed in chapter 3.

• A Streamlined Installment Agreement, which is designed for individuals who owe $50,000 or less. Prior to the Fresh Start Imitative, this amount was $25,000 or less.
o Under this agreement, you have 72 months to pay off your entire debt. However, the 72 month period must end be within the collection statute expiration date of 10 years.
o In rare instances, the IRS may request that you provide detailed financial information. (For complete instructions on how to apply, see chapter 3.) The IRS will not look at public records for any assets you may own.
o Generally a lien will not be filed if the amount you owe is less than $25,000 and you have agreed to have the monthly payments directly withdrawn from your account. If a lien has been filed and you have been making your payments on time, you may complete and submit Form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien to request that the lien be waived. If you owe more than $25,000, you should not expect for the lien to be released.

• An In-Business Trust Fund Express Installment Agreement (IBTF-Express IA), which is meant for small businesses that owe $25,000 or less. To qualify, you must meet the following criteria:
o Be compliant with all filing requirements
o You must agree to enroll in a Direct Debit Installment Agreement (DDIA), if you owe an amount between $10,000 and $25,000.
o You must be able to pay the debt in full within 24 months or before the Collection Status Expiration Date (discussed in chapter 5)
o Instructions on how to apply for this agreement are detailed in Chapter 5.

• Business Partial Payment Installment Agreement, which is intended for all other businesses that do not meet the criteria detailed above.
Until your agreement has been approved by the IRS, it is considered an impending installment agreement. However, this does provide you with protection against aggressive collection techniques. That being said it is important to understand that your request cannot be frivolous. In other words, you can’t just file requests in an effort to delay the collection process.
How to file for a payment plan agreement is explained in Chapter 3.
Chapter 2: The Advantages and Disadvantages Associated with an IRS Payment Plan Agreement
Now that you are familiar with payment plan agreements and how they work, let’s take a minute and look at the potential pros and cons you may experience when entering into this type of agreement.
Opting to enter into a payment plan agreement comes with both advantages and disadvantages. While the following looks specifically at those associated with the IRS, you should be aware that they also apply to entering into a payment plan with a specific state. After reading through them, it will be up to you to decide if this is the best option for you.

Advantage #1: A payment plan allows you steadily work toward paying off your tax liability.
By agreeing to a payment plan, you are giving yourself the chance to pay off the amount you owe in affordable monthly installments. Depending on the payment plan you have agreed to, you should still be able to meet your other monthly obligations. If agreeing to a payment plan will cause a serious financial burden, you may want to explore your other options, such as an offer in compromise, first.

Advantage #2: Provided you abide by the terms of your payment plan agreement, you will not have to worry about the IRS taking your property or earnings in an effort to collect your tax debt.
When you owe back taxes and have not made a plan to repay them, you essentially wake up every morning wondering if this is the day you will get a Notice of Lien. (You should be aware that the IRS still has the option of filing a lien, as discussed below, however it will not be unexpected.) Fortunately, when you do make arrangements to pay back the amount you owe, the IRS will usually leave you alone. You will not have to worry about what efforts the IRS is making to get back the amount of taxes they are owed. However, this, again, is contingent on you abiding by the terms of your payment plan agreement.

Advantage #3: A payment plan agreement makes your relationship with the IRS much easier to deal with.
When you owe a tax debt, whether it is to the IRS or a certain state, you start off every day with a massive headache. When you hear a knock at the front door, is there a certified letter waiting on the other side? When you do not recognize the phone number that is calling you, is it an agent who wants to discuss your debt and your plans to pay it off? When you have no option but to call the IRS, do you spend half the day on hold waiting for an agent to come to the line and finally answer your question? When the IRS agrees to your payment plan, you can finally breathe easily, knowing that as long as you keep up your part of the agreement, your relationship with the IRS will be much more cordial.

Advantage #4: The simple act of requesting a payment plan offers some form of protection.
` When you apply for a payment plan, the IRS will review your request, which is referred to as an impending installment agreement. This will buy you some protection from aggressive collection activity.

Advantage #5: You could benefit from a reduction in penalties.
If you have opted to allow the IRS to automatically deduct your installment agreement payments out of your checking account, there is a chance they will automatically reduce your penalties.

Advantage #5: Your tax lien may be removed.
According to the IRS Fresh Step Program guidelines, when you meet certain requirements, the IRS may opt to withdraw a filed Notice of Federal Lien. However, this is not something that is done automatically. You must complete and submit Form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien. The address your application should be mailed to is listed on page 2. The good thing about having a lien removed is that it should help clean up your credit, which may allow you to establish or reestablish trade lines with reputable businesses.

Advantage #6: Installment plan payments can be adjusted if you encounter issues with your cash flow.
This is probably most important for retail business owners and businesses that deal with terrorism. In cases where cash flow is considerably lower at certain times of the year, your payment may be as little as $25-$50 a month. When sales increase, your payments can be adjusted accordingly.

Disadvantage #1: You will lose your tax refunds until your full liability has been paid off.
If you are paying off your debt through a payment plan and you are owed a federal or state refund, it will automatically be taken and credited to your debt. (You should be aware that your refund amount is applied toward your total debt and not your scheduled monthly payment amount. You will still need to make your installment agreement payments as scheduled or you run the risk of accruing penalties, along with the interest that is already accruing.) Of course, this just means your offer will be paid off sooner, so this is a disadvantage that also has its advantages.

Disadvantage #2: Interest, and possibly penalties, will continue to accrue until your entire debt has been paid in full.
Unfortunately, interest will continue to be added to the amount of the debt you owe until it has been paid off. Although IRS interest rates do change from quarter to quarter, you can look at current interest rates here. (Be aware that interest accrued on state tax debts does vary depending on the state you are in. You will need to contact the agent listed on the notifications and/ or bills you receive from the Department of Revenue for additional interest rate information.) Thanks to interest and penalties, you will end up paying much more than the amount of your original tax liability.
On a side note, please be aware that you cannot deduct past due payments, interest, or penalties from future tax returns. However, past due payments made on state income taxes can be deducted from your federal return. Penalties and interest on past due state income taxes cannot be deducted.

Disadvantage #3: You may still be hit with liens until you have paid off your debt.
You should be aware that if you owe $10,000 or more, the IRS will file for a tax lien. Tax liens, which are known as Form 668, are very powerful. After 180 days, they jump ahead of most secured securities on your home. Just because the IRS agrees to a payment plan agreement does not mean you are home free. To protect the government’s own interests and secure your payment agreement, the IRS still has the option of filing a tax lien against you. This will negatively impact your credit for the duration of the payment agreement.

Disadvantage #4: The IRS may require that you sell some of your assets to lower the payment plan agreement’s principal balance.
In some cases, the IRS may mandate that you sell some of your assets and use the proceeds toward your outstanding debt. According to the IRS, this is usually only the case with high debt amounts, such as those that exceed $25,000.

Disadvantage #5: The IRS does charge a fee for setting up a payment plan.
When the IRS agrees to a payment plan agreement, you are charged a $120 fee for setting it up. However, if you opt for automatic payment withdrawals, the fee is reduced to $54. If you meet income verification requirements, the amount you are being charged may decrease even more. The fees are taken out of your first month’s payment. You should also be aware that if you default on your payment plan agreement, the IRS can charge additional fees for reinstatement.

Disadvantage #6: The IRS requires financial disclosure for payment installment agreements.
Before a PPIA is reached, the IRS will request a variety of financial information statements. This may include several months of bank statements, paycheck stubs, a list of all the accounts you are listed on (as well as the account number and address of the bank, the amount of tax paid on vehicles in your name, and even your DMV number. Essentially, the IRS will go well above the call of duty to make sure the financial information you have submitted is correct before making their determination.
On the other hand, if you are agreeing to a Guaranteed Installment Agreement or an In-Business Trust Fund Express Installment Agreement, the IRS asks for very little financial documentation.

Chapter 3: Completing and Submitting a Payment Plan Request
Keep in mind that how you will submit your payment plan request based on the total amount you owe.

How to Apply as an Individual Who Owes $50,000 or Less
This applies to individuals who are applying for a Guaranteed Installment, as well as a Streamlined Installment Agreement. The IRS has made this process very simple. Before you get started, you will need the following information:
• Name
• Date of birth
• Address listed on the tax return you most recently had processed (Even if you have moved, you will need to use the address on your last tax return. You can submit a change of address form later, which will be discussed below.)
• Your filing status
• A valid email address that you check on a regular basis
• The amount of your tax debt
• Your social security number (If you have filed jointly, you will also need your spouse’s information.)
Be aware that if your filing status is marred filing jointly, you must use the social security number that is listed first on your tax return.
Once you have obtained all the needed information, you should go to IRS Logon page to apply as individual. This is where you will need to apply for a Guaranteed Installment Plan and a Streamlined Installment Agreement. If you do not already have a user ID and password you will need to create one to use this service.
After you have logged on to your account, you will be asked to enter the amount of the tax debt you owe. You should be able to find this amount on the last correspondence you received from the IRS. If not, you can call 1-800-829-0994 ext. 684 for assistance.
You will, then, be asked to choose a 60 day, 120 day, or monthly option. If you choose the 60 or 120 day payment plan, your account must be paid in full by this date. If you opt for a monthly payment, you will be directed to a page where you will asked to propose a monthly payment amount, as well as the monthly payment due date.
Finally, you will need to choose your method of payment. Both options require you to pay a $43.00 user fee. The two options include:
• Direct Debit Installment Agreement: This agreement means that the amount of your monthly payment will be automatically deducted from your banking account each month. If you select this option, you will be directed to a page where you will need to fill in your banking account information. After verifying your contact information, you will have your payment confirmed.
• Installment Agreement, which requires that you send in your monthly payment by the due date each month. If you select this option, you will be directed to a page that outlines the terms and conditions of your agreement. You must agree to the Terms and Conditions in order to continue. Within 10 days of agreeing, you will receive a written acceptance of your payment plan agreement from the IRS.

How to Apply for a Payment Plan Agreement if Your Debt Exceeds $50,000
Although this process isn’t quite as quick and easy as the online payment agreement plan, the IRS has worked to make it as simple as possible. You will need to do the following:
• Complete Form 9465, Installment Agreement Request. Don’t forget to sign and date the bottom of the first page. Detailed instructions on how to complete Form 9465, Installment Agreement Request, as well as where you should submit your request can be found here.
• You must also complete the Collection Information Statement. Both of these forms must be submitted together for your installment agreement request to be considered. Instructions for completing this form can be found on pages 3 and 4.
• When setting up a payment plan using Form 9465, you have the option of having your monthly payments automatically deducted from your paycheck. In this case, you will need to complete and submit Form 2159, Payroll Deduction Agreement.
Be aware that if you fail to include how much you plan to pay each month, the IRS will determine your monthly payment to be the amount that you owe divided by 72.

How to Apply for Businesses with a Debt of $25,000 or Less
If your business owes $25,000 or less in payroll taxes (including penalties and interest, you can quickly apply for an In-Business Trust Fund Express Installment Agreement by going to this page and selecting one of the options listed. From there, you will be asked to log in. You will need to have the following information available:
• Your Employer Identification Number (EIN)
• The date your EIN was assigned
• The address listed on your most recently processed tax return
• The caller ID number that is listed on any correspondence you have received from the IRS
If you are unable to log in, you can call 1-800-829-0994 ext. 654 for assistance.

How to Apply for Business with a Debt that Exceeds $25,000
In this case, you will need to contact the Field Collection Revenue Officer assigned to your case (name and phone number can be found on any correspondence received from the IRS) or the IRS directly at 1-800-829-4933

A Final Option for Applying for a Payment Plan Agreement (Both Individual and Business)
If you are unable to apply online and/ or complete and submit the required forms, you can contact the IRS at 1-800-829-1040 and request an installment agreement.

Chapter 4: After You Have Filed Your Payment Plan Request
According to Form 9465, you should know within 30 days of the IRS receiving your request whether or not your request has been approved. If your request is approved, you will be sent a notice that details the terms of your agreement. In order to set up your agreement, you will need to submit $120.

Collection Status Expiration Date
The IRS has 10 years from the date of the tax assessment to collect on the taxes you owe. However, the collection process could be extended in certain situations, including:
• You have filed for bankruptcy. The statute may be extended for the entirety of the bankruptcy proceedings.
• You file an Offer in Compromise.
• You previously signed a waiver agreeing to an extension of the statute. You should never sign any waiver from the IRS until you have consulted a qualified tax advisor.

Submitting a Change of Address
In the event you move, it is a good idea to notify the IRS of your new address while you are paying off your liability. To do this, simply complete Form 8822, Change of Address. You should mail the form to the address listed on page 2.

What to Do If You Cannot Make a Payment
Once you have committed to a payment plan with the IRS, it is absolutely crucial that you adhere to the plan. In the event you will not be able to make your payment on time, you should contact the IRS as soon as you realize this is the case to discuss your situation. You can contact the IRS about your payment agreement at 1-800-829-1040. This is also the number you can call should you want to try and modify the terms of your agreement or terminate it completely.

A State-by-State Guide to Requesting a Payment Plan
Most taxpayers who have and IRS tax debt normally have a state tax debt. Below is a state by state guide for setting up your state payment plan options. If you have an IRS tax debt and/or a state tax debt feel free to call us at (888) 260-9441 for a free case review now.

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