Most payment plans arranged with the IRS are “streamlined” plans. An IRS streamlined payment plan is one that allows the taxpayer up to 72 months to pay the debt if the original debt assessed is less than $50,000.00, all returns have been filed, and the taxpayer agrees to allow the IRS to withhold the payment from a checking account each month.
For taxpayers who can't afford to pay the balance over 72 months, or that don't have 72 months remaining in the IRS statute of limitations period, the negotiation of a payment plan may get a bit harder. The problem is that thousands of people each year who qualify for a streamlined plan and who can afford to make the streamlined plan payment, give TV or radio tax debt companies thousands of dollars to set them up. For most people a streamlined payment plan can be done without paying for help at all.
Here are the steps you need to take if you want to try to set up a streamlined payment plan yourself:
Step 1 – Make sure you actually owe the money.
It is possible that the IRS has filed substitute return(s) that are incorrect, or that the IRS statute of limitations on collection is about to run out on a particular year, or that the IRS has miscalculated the debt, penalties or interest, or the audit determination the IRS gave you is just wrong and is appealable. You don't want to arrange a payment plan if you can avoid it, until you are certain that the debt is correct.
Step 2 – If the debt is correct…how much is it?
You need to have an overall debt that is less than $50,000.00 “assessed”. The IRS doesn't consider the accruals of penalty and interest after the original assessment date as part of the “assessed” balance for purposes of a streamlined agreement. On the date the IRS reviews your return and enters the debt into the books it also adds any penalty and interest owed as of that day. That amount is the “assessed” balance. Penalty and interest that accrue after the assessment date aren't. The IRS will tell you what it shows the assessed balance is and you can order IRS account transcripts to review the original amount and the penalty and interest originally tacked on to verify it.
So..if the overall debt is $66,000.00, the assessed amount amount may only be $53,000.00. If so, than you may be able to pay $3000.00 in order to get the assessed balance to $50,000.00 and pay $66,000.00 over 72 months from your bank account. Find out what the assessed balance is, make sure it is $50,000.00 or less.
Step 3 – Make sure that you can afford the payment.
Look realistically at your income and your budget. Break them down on average per month. Include every possibly item you spend money on. Make sure that you can afford the payment plan you are going to set up with the IRS. Take into account a bit of interest on the debt as well.
If you find that you can't afford the payment, you probably need to stop here and call to ask about other options. But if it is clear that the payment of all the debt with interest is doable, move ahead.
Step 4 – Make sure you have 72 months remaining in the statute of limitations period
If you have 3 debts from 3 different years and one of them only has 1 year remaining on the statute period, this won't work very well unless the overall payment total will pay that year off within the time remaining on it's statute period. An example: Year 1 total: $10,000.00 Year 2 total: $10,000.00 Year 3 total: $20,000.00 Year 1 statute period remaining: 12 months Years 2 and 3 statute periods remaining: 80 months
The total debt is $40,000.00. This amount divided by 72 is $555.55 per month. $555.55 over 12 months is only $6666.60, or less than the Year 1 total debt. In this scenario the payment would have to be greater than the $555.55 per month in order to ensure Year 1 was paid within 12 months.
Step 5 – Call the IRS
I know…this is the last thing you wanted to hear. But the reason I suggest this is that when you just submit a 9465-FS form and request a streamlined plan in writing first, IF it is denied because the numbers aren't right, AND you are subject to collection, the IRS may garnish your wages or levy your accounts before you know what has hit you. It is typically better as a result, to review the assessed balances with the IRS, the totals, the payment plan numbers, statute periods, mailing addresses etc. before filling out the 9465 fs form just to add a bit of assurance that you got it right and that your request when sent in, won't be rejected.
Step 6 – Getting Help
If you are going to have an attorney help you with this, make sure that you don't pay more than you should. The attorney should be able to determine whether you qualify for a streamlined plan within a few hours and finalize and follow up to ensure it is in place within a few more. Don't pay a large amount for streamlined payment plan help when you can certainly figure this out on your own.