Thursday, August 4, 2011

IRS Installment Agreements: If the IRS Rejects or Revokes Your Installment Agreement Proposal

 In my last blog entry, I discussed how to set up an Installment Agreement with the IRS.  A good follow-up question to this topic is what happens if the IRS refuses or revokes your Installment Agreement proposal.  Here are some tips if this happens to you.

What if the IRS refuses my Installment Agreement proposal?
If the IRS won't agree to installment payments, it is usually for one of three reasons:
  1. Your living expenses are not all considered necessary. The IRS may deem your expenses extravagant. For example, if you have hefty credit card payments, make any charitable contributions, or send your kids to private school, expect the IRS to balk. Although reasonable people would disagree on what is necessary and what is extravagant, the IRS is rather stingy here.
  2. Information you provided on your Collection Information Statement, Form 433-A, is incomplete or untruthful. The IRS may think you are hiding property or income. For example, if public records show your name on real estate or motor vehicles that you didn't list, or the IRS received W-2 or 1099 forms showing more income than you listed, be prepared to explain.
  3. You defaulted on a prior IA. While this doesn't automatically disqualify you from a new IA, it can cause your new proposal to be met with skepticism.

If your IA proposal is first rejected, you can keep negotiating. Ask to speak to the collector's manager. Just making this request is sometimes enough to soften the collector up. If you get nowhere with the manager, you can go over her head – everyone at the IRS has a boss. You can complain to her immediate boss, then the collections branch chief, and then the district director. Squeaky wheels sometimes do get greased. Again, just talking about going up the ladder may cause a change in attitude at the lower rungs and get you a fair payment plan.

When can the IRS Can Revoke an Installment Agreement?
Once you receive approval of your IA, you and the IRS are bound by the terms of the agreement, unless any of the following are true:
  • You fail to file your tax returns or pay taxes that arose after the IA was entered into. Although IRS computers do not continue to review your finances, they do monitor you for filing future returns and making promised payments.
  • You miss a payment. Under the terms of all IAs, payments not made in full, and on time, can cause the IA to be revoked immediately. In practice, the IRS usually waits 30 to 60 days before revocation – at least on the first missed payment. You are entitled to a warning or a chance to reinstate the agreement.
  • Your financial condition changes significantly – either for the better or worse. The IRS usually won't find out about this unless you tell. The IRS may review your situation every year or two, however, and require you to submit a new Form 433-A in order to continue your IA.
  • The IRS discovers that you provided inaccurate or incomplete information as part of the negotiation. For example, you may have omitted to mention certain valuable assets.
If you need help or advice on this process, it might be helpful to seek the advice of an experienced tax professional.  Such a person often will advise you without a fee – just to help you out.  Feel free to call me at (760) 990-1632 if you need any clarification of this process.  I will be happy to hear from you.

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Do you have questions about this topic? Email or call me for a free consultation and we can discuss your situation. (760) 990-1632.

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