The IRS recently issued final regulations covering procedures for installment payment agreements with taxpayers who can’t pay their federal income tax liabilities on time.
Alert: The final regulations generally take a pro-taxpayer approach. For instance, the IRS will provide taxpayers with a 30-day notice if it intends to modify or terminate an installment payment agreement.
The IRS also acknowledges that many taxpayers are facing dire financial situations. It reiterates that taxpayers may request lower installment payments if they are experiencing economic hardships.
Here’s the skinny on the new rules:
Acceptance or rejection: Under the new final regs, the IRS isn’t required to reject a proposed installment agreement within a prescribed time frame, nor does it have to automatically grant its acceptance. However, most installment agreements are granted automatically under the streamlined procedures for small cases.
Case in point: In 2008, the IRS approved 2.51 million agreements out of 2.62 million proposals. Typically, the IRS will rubberstamp an agreement for a deficiency under $25,000 if it requires a monthly payment of at least one-sixtieth of the amount owed.
Pending status: A proposed installment agreement becomes pending when it is accepted for processing. As with the proposed regulations, the final regs say the agreement will remain pending until the IRS accepts the proposal, it notifies the taxpayer that the proposal has been rejected or the taxpayer withdraws the proposal.
Modifications: The final regulations expressly allow taxpayers to request a modification or termination of an existing installment agreement.
The IRS may not notify a taxpayer (or the taxpayer’s rep) of a rejection until an independent review of the proposed rejection is completed. The independent review will be conducted by an IRS staffer who hasn’t been involved in the case. Also, the IRS may modify or terminate an agreement if it discovers the taxpayer’s financial condition has changed substantially.
Notifications: You can expect to be notified by the IRS in writing at least 30 days prior to the modification or termination of an installment agreement. The IRS will describe the reason for the action. But it won’t give a 30-day notice if it believes that collection of the tax is in jeopardy.
Levies: No levy may be made when a proposed installment agreement is pending with the IRS; for 30 days following rejection of a proposed installment agreement; during the time an installment agreement is in effect; or for 30 days following termination of an installment agreement.
Appeals: The final regs allow taxpayers to appeal a modification or termination of an installment agreement. Caveat: Taxpayers can’t appeal a determination not to modify the agreement.
Tip: An installment agreement isn’t always the best approach because interest and penalties can still pile up. Consider loans or other options.
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